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.
