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Globalization Trend Remains Strong but Policy Decisions Threaten Momentum

Despite growing anti-globalization tensions in many countries, global connectedness reached an all-time high in 2017, as the flows of trade, capital, information and people across national borders all intensified significantly for the first time since 2007, according to the fifth edition of the DHL Global Connectedness Index (GCI).

The new GCI report, a comprehensive assessment of developments in globalization across 169 countries and territories, is the first since the Brexit referendum in the U.K. and the 2016 U.S. presidential election. But it doesn’t reflect key policy changes such as U.S. tariff increases, which had not yet been implemented when the data was first collected for analysis, DHL noted.

However, in the executive summary of the report published Tuesday, the authors said, “Public policy threats to globalization…have become more acute in 2018. Tit-for-tat tariff escalation raised the specter of trade wars and countries enacted policies aimed at curbing foreign corporate takeovers, cutting immigration and restricting international data transfers. While we do not have sufficient data yet to report an overall level of global connectedness for 2018, available measures suggest these developments have weighed on the growth of international flows.”

The 2018 index measures the current state of globalization, as well as individual rankings for each country, based on the depth, or intensity of international flows, and breadth, or geographical distribution of flows, of countries’ international connections.

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The top five most globally connected countries in 2017 were the Netherlands, Singapore, Switzerland, Belgium and the United Arab Emirates. Eight of the top 10 most connected countries are in Europe, helping make it the world’s most connected region, particularly for trade and people flows.

North America, the leader in capital and information flows, ranked second among world regions, followed by the Middle East and North Africa. The top two economies in the world–the U.S. and China–are ranked 30th and 61st, respectively. This, according to the report, is due to the size and resources of these countries leading to more domestic interaction and consumption.

“Even as the world continues to globalize, there is still tremendous untapped potential around the world,” said John Pearson, CEO of DHL Express. “The GCI shows that currently, most of the movements and exchanges we’re seeing are domestic rather than international, yet we know that globalization is a decisive factor in growth and prosperity. Increasing, international cooperation continues to contribute to stability, so companies and countries that embrace globalization benefit tremendously.”

GCI co-author Steven A. Altman, senior research scholar at the NYU Stern School of Business and executive director of NYU Stern’s Center for the Globalization of Education and Management, said even after globalization’s recent gains, the world is still less connected than most people think.

“This is important because, when people overestimate international flows, they tend to worry more about them,” Altman said. “The facts in our report can help calm such fears and focus attention on real solutions to societal concerns about globalization.”

The GCI shows, for example, that just about 20 percent of economic output around the world is exported. And perhaps not surprisingly, emerging economies trade almost as intensively as advanced ones, though advanced economies are more than three times as integrated into international capital flows and nearly nine times to information flows.

The five countries where international flows exceed expectations the most were Cambodia, Malaysia, Mozambique, Singapore and Vietnam. Four of these top five countries are in Southeast Asia, which means they’re able to benefit from linkages with wider Asian supply chain networks, as well as ASEAN policy initiatives promoting economic integration. This could contribute to continued growth for the region as deeper global connectedness can help accelerate countries’ economic growth, the report noted.

Overall, “the policy environment for globalization darkened in 2018, as trade conflicts escalated and countries raised barriers to foreign takeovers, immigration and other flows,” the report’s authors said. “However, supporters of open markets fought back with a wave of landmark trade agreements.”

The future of globalization depends on the choices of policymakers around the world, according to the GCI report.

“Because global connectedness remains limited, countries have more flexibility than many presume to shape their international flows and influence the distribution of their benefits,” it said.