World’s current level of globalisation still lower than pre-crisis peak

DHL recently released the second edition of the DHL Global Connectedness Index (GCI), a comprehensive analysis of the state of globalisation around the world. The report, drawing on over one million data points from 2005 to 2011, concludes that the world today is less globally connected than it was in 2007.

It documents how global connectedness, measured by international flows of trade, capital, information and people, grew robustly from the report’s baseline year of 2005 to 2007, and then dropped sharply at the onset of the financial crisis. Despite modest gains since 2009, global connectedness has yet to recapture its pre-crisis peak.

“The GCI 2012 indicates that today’s volatile and uncertain business environment bears the lasting impact of the financial crisis,” remarked Deutsche Post DHL CEO Frank Appel. “Especially in this period of slow growth, it’s important to remember the tremendous gains that globalisation has brought to the world’s citizens and to recognise it as an engine of economic progress,” he added. “Above all, governments must resist protectionist measures that hinder cross-border interactions.”

While the world as a whole experienced only a very modest increase in global connectedness from 2010 to 2011, some individual countries had large gains. The countries with the largest increases in their global connectedness scores from 2010 to 2011, are Mozambique, Togo, Ghana, Guinea and Zambia all of which are located in Sub-Saharan Africa. While this region remains the world’s least connected, it averaged the largest connectedness increases from 2010 to 2011.

The Netherlands retained its 2010 position as the world’s most connected country. Of the top ten most connected countries in 2011, nine of them are located in Europe. This is the world’s most connected region.

“Europe’s high level of global connectivity points to one of the greatest achievements of European integration,” commented Appel. “We have to remember this as talk of fragmentation enters the debate over the continent’s future.”

Although it tops the 2011 ranking, the Netherlands has surprising headroom to further increase its integration with the world, as revealed in a new case study in the 2012 edition of the GCI.

“Investigating the actual extent of globalisation on a country-by-country and regional basis, reveals two critical things,” explains author of the GCI Professor Pankaj Ghemawat.

“First, cross-border flows are significantly lower than commonly perceived, and second, every country even the Netherlands has untapped possibilities to benefit from more connectedness. At a time of economic weakness, this represents one of the most powerful levers available for boosting growth.”

Connectedness and prosperity strongly linked

The 2012 edition of the GCI also includes case studies on Mexico and Vietnam and offers eight recommendations to help countries enhance, or expand their connectedness with the rest of the world. This new chapter also highlights evidence that the depth of global connectedness, the proportion of flows that cross national borders, contributes to economic development and prosperity.

 “The benefits of expanding merchandise trade are much larger than traditional models indicate,” explains Professor Ghemawat. “Adding to that the gains from services trade and other kinds of cross-border flows, the estimated economic benefits double to at least 8% of global GDP.”

Industry connectedness impacted by the rise of emerging markets

A further key enhancement to the 2012 edition of the GCI is an analysis of industry-level connectedness. The report concludes that the world’s shifting economic centre of gravity is reshaping industry connectedness. The migration of production and consumption to emerging markets has specific implications for the three industries highlighted in the report: pharmaceuticals, passenger cars and mobile phones. The report offers lessons on how companies can adapt their strategies to benefit from the changing geography of production and consumption.