Executive Briefings

Is Globalization Dead - or Just Entering New Phase?

Is globalization over? Some commentators consider the United Kingdom's vote to leave the European Union to be a sign that it is. Brexit has certainly thrown markets, exchange rates, and consumer confidence into turmoil, but the model of globalization that has developed over the past 200 years started showing signs of change well before the referendum.

For instance, the growth of global gross domestic product - one of the traditional metrics of globalization - fell from a high of 6 percent in the 1960s to 3 percent in 2015. And FDI as a share of total investment has been declining even as total global investment has increased.

Most striking, there appears to be a structural delinking of trade (measured as the total imports and exports of goods and services), which is regarded as a hallmark of globalization, and GDP growth: from 1960 to 2008, the trade-to-GDP ratio grew by 35 percentage points; over the past five years, it has grown by only 0.2 points.

Experts from academia, the private sector, think tanks, and the media point to these indicators as evidence of the end of globalization. They also point to factors such as growing trade protectionism on one hand and the increasing cost of labor in emerging markets, which is leading to the reshoring of manufacturing, on the other. We, however, take a different view. We think that rather than signaling the death of globalization, the decline in the traditional metrics signals the birth of a radical new phase of globalization—one that rebalances geopolitics with geo-economics.

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For instance, the growth of global gross domestic product - one of the traditional metrics of globalization - fell from a high of 6 percent in the 1960s to 3 percent in 2015. And FDI as a share of total investment has been declining even as total global investment has increased.

Most striking, there appears to be a structural delinking of trade (measured as the total imports and exports of goods and services), which is regarded as a hallmark of globalization, and GDP growth: from 1960 to 2008, the trade-to-GDP ratio grew by 35 percentage points; over the past five years, it has grown by only 0.2 points.

Experts from academia, the private sector, think tanks, and the media point to these indicators as evidence of the end of globalization. They also point to factors such as growing trade protectionism on one hand and the increasing cost of labor in emerging markets, which is leading to the reshoring of manufacturing, on the other. We, however, take a different view. We think that rather than signaling the death of globalization, the decline in the traditional metrics signals the birth of a radical new phase of globalization—one that rebalances geopolitics with geo-economics.

Read Full Article