Global connectedness – the extent to which countries are interconnected - can be a powerful lever for increasing prosperity. Despite decades of globalisation, the world is less connected than is commonly presumed – and significantly less connected than it was in 2007, before the onset of the global financial crisis.
The DHL Global Connectedness Index has been an annual treat for a few years now. The Index measures and analyses the global connectedness of 140 countries, covering 99% of the world’s GDP and 95% of its population. It measures the depth and breadth of countries’ trade, capital, information, and people flows. Twelve distinct components of connectedness are incorporated across those four subject areas, with historical coverage back to 2005. The index measures:
- how much of a country’s activities or flows are international versus domestic by comparing the size of its international flows with measures of its domestic economy. This is its trade depth;
- how broadly the international component of a given type of activity is distributed across countries. For example when looking at exports how broadly are the goods exported – to a few dominant markets or a broad spread. This is its trade breadth;
- Foreign direct Investment (FDI) flows as a proportion of gross fixed capital formation ( the value of a countries investment in new assets);
- Telecommunications flows between countries; and
- Migration of people between countries.
This report is full of fascinating analysis, particularly over time. In the years before the global financial crisis, global connectedness grew robustly, powered by rising trade, capital, and information flows. Capital was the first area to suffer a steep decline, falling from 2007 back below its 2005 level. The sharp drop in 2008 was driven by a decline in valuations of international investment stocks - the global stock of international portfolio equities, for example, accounted for only 16% of world GDP at the end of 2008, compared with 31% one year earlier.
Trade was the next to fall, with exports of goods and services plummeting in 2009 to 25% of GDP from 30% in 2008. By contrast with capital however, trade began a strong recovery in 2010 and by 2011 had recovered more than half of its prior losses. The information and people areas have proved more robust. As far as information is concerned, the broad pattern has been one of expanding connectivity.
The net result of these developments across different types of flows is that the world as a whole is only slightly more globally connected than it was in 2005 and much less than it was in 2007.
The UK comes in as the 6th best connected country in the index and 9 of the top 10 are European, reflecting its standing as the worlds most globally connected region. Food for thought for those who would see us withdrawing from Europe altogether.
The full report can be downloaded here http://www.dhl.com/en/about_us/logistics_insights/global_connectedness_index_2012/gci_results.html