A detailed country-by-country analysis of the flows that connect the world indicates that globalization is still not as advanced as most people believe and that continued economic integration could spur global gross domestic product gains of five percent or more.
So says the Global Connectedness Index (GCI), a study released by DHL. GCI ranks 125 countries according to the depth and breadth of their integration into the world economy and also examines the relationship between global connectedness and welfare. The study documents that global connectedness has enormous room to expand, even among the most "connected" countries.
The study was unveiled against the backdrop of the APEC CEO Summit and Leaders' Week in Honolulu, a global summit where heads of state and business leaders meet annually to discuss international economic issues. The study was commissioned by DHL and conducted by global business strategist and economist Pankaj Ghemawat, professor of global strategy at the IESE Business School, Barcelona.
"This research provides evidence that a connected world is a better world, in terms of global welfare and individual development. The free trade of products and services contributes significantly to global prosperity," said Roger Crook, chief executive officer, DHL Global Forwarding, Freight. The data findings of DHL's study will likely be of benefit to corporate as well as political and economic leaders as they shape business and trade strategies, Crook said. "By calibrating how truly connected we are, countries can identify opportunities and the channels through which they can improve their prosperity."
"Our research shows that global economic integration is not as deep as perceived. Therefore, we see untapped potential for growth for each country and globally. Increasing global connectedness is likely to spur further growth by adding trillions of dollars to global gross domestic product," added Ghemawat.
The DHL Global Connectedness Index 2011 examines data on 10 different types of international flows, covering the categories of trade, capital, information and people, over the years from 2005 to 2010. Unlike existing indices, the GCI analyzes not only the depth of countries' cross-border interactions but also their geographic breadth - distinguishing countries that are truly connected across the globe from those with deep ties only to a small set of partner countries. Additionally, it is based exclusively on hard quantitative data. Click here for further information on the methodology of the study.
The 2011 GCI found that the 10 most connected countries are the Netherlands, Singapore, Ireland, Switzerland, Luxembourg, the United Kingdom, Sweden, Belgium, Hong Kong (China) and Malta. The diversity of the leading countries is even greater in the top 50 list, which includes representatives from all six continents. These patterns indicate that the benefits of connectedness are accessible to a broad range of countries, not just trading hubs that lead many other globalization indices.
"The positive impact of global connectedness on world prosperity will continue to be of great importance. The misgivings some political leaders have about increasing global integration are misplaced; its benefits far outweigh the potential downsides," said Ghemawat.
Key takeaways from the index include:
• The actual level of connectedness today is much lower than commonly believed; its potential for positive growth, therefore, is significant.
• The Netherlands ranks No. 1 in terms of overall connectedness, Hong Kong scores the highest regarding the depth of its international connections, and the United Kingdom tops the list for the breadth of its connections.
• Despite increasing its trade interaction in recent years, the United States ranks No. 25 overall. The United States is a leader in term of breadth (#3), but as is expected for a country with a very large internal market, it lags on depth (#84).
• The lion's share of international connections are still concentrated among countries that share borders (such as in Northern Europe) as well as cultural and historical ties, which indicates that much of today's globalization is actually regionalization.
• Larger countries score higher on the global breadth of their connections; smaller countries excel in the depth of their connectedness.
• Countries that pursue public policies that directly encourage greater international flows, as well as policies that improve the domestic business environment, can enhance their global connectedness.
Download the full DHL Global Connectedness Index 2011 as well as further background information.
