GLOBAL ECONOMIC FLOWS

 Global flows have been a common thread in economic growth for centuries, since the days of the Silk Road, through the mercantilist and colonial periods and the Industrial Revolution. But today, the movement of goods, services, finance, and people has reached previously unimagined levels. Global flows are creating new degrees of connectedness among economies—and playing an ever-larger role in determining the fate of nations, companies, and individuals; to be unconnected is to fall behind.

In 2000, the International Monetary Fund (IMF) identified four basic aspects of globalization: trade and transactions, capital and investment movements, migration and movement of people, and the dissemination of knowledge.

Flows of goods, services, and finance have increased to a enormous extent. Now, one in three goods crosses national borders, and more than one-third of financial investments are international transactions. In the next decade, global flows could triple, powered by rising prosperity and participation in the emerging world and by the spread of the Internet and digital technologies. (Scenarios show that global flows could reach $54 trillion to $85 trillion by 2025, more than double or triple their current scale.)

Within each type of flow, it is found that knowledge-intensive ones are growing faster than the labor-intensive or capital-intensive variety. Exchanges of goods such as aircraft and automobiles, semiconductors, pharmaceuticals, and microelectronics, as well as professional services and foreign direct investment flows, are growing faster than others.

While the last era of globalization was driven largely by sourcing low-cost production, the next era will center on the rise of the global knowledge economy.

The spread of the Internet and of digital technologies is transforming all types of flows and creating new ones. Global online traffic across borders grew and could increase eightfold more by 2025.

Digital technologies, which reduce the cost of production and distribution, are transforming flows in three ways: through the creation of purely digital goods and services, “digital wrappers” that enhance the value of physical flows, and digital platforms that facilitate cross-border production and exchange. The enormous potential impact of digitization is only beginning to emerge. Consider that international Skype-call minutes grew to 40 percent of the present level of traditional international calls in just a decade. Or that cross-border e-commerce has grown to represent more than 10 percent of trade in goods in less than a decade.

The network of global flows is expanding rapidly as emerging economies join in. Rising incomes in the developing world are creating enormous new centers of consumer demand, global production, and commodities trade, as well as sending more people across borders for business and leisure.

Existing routes of flows are broadening and deepening and new ones emerging as more countries participate.

Not only more countries but also more players are participating in global flows. Governments and multinational companies were once the only actors involved in cross-border exchanges. But today, digital technologies enable even the smallest company or solo entrepreneur to be a “micromultinational,” selling and sourcing products, services, and ideas across borders.

Individuals can work remotely through online platforms, creating a virtual people flow.

Microfinance platforms enable entrepreneurs and social innovators to raise money globally in ever-smaller amounts.

We now take for granted that we live in an interconnected world, but a closer examination of a broader range of global flows reveals a more complex and rapidly expanding web of connections than is commonly understood. The landscape now offers more entry points to a far broader range of players than it did in the past. Not only the largest global companies and investors but also emerging countries, small businesses, and even individuals and entrepreneurs can play a larger role. For participants of all types—countries, cities, businesses, governments, and individuals—participating in global flows offers major economic opportunities. But smart strategies and policies will be needed to take full advantage—and to avoid being left behind.

The three major barriers to international trade are natural barriers, such as distance and language; tariff barriers, or taxes on imported goods; and nontariff barriers. The nontariff barriers to trade include import quotas, embargoes, buy-national regulations, and exchange controls.

The movement of goods and services, finance, and people has reached previously unimagined levels. Global flows are creating new degrees of connectedness among economies—and playing an ever-larger role in determining the fate of nations, companies, and individuals. To be unconnected is to fall behind.