Rebalancing in Global Networks

Declining Globalization?

Globalization—as manifested through free cross-border flows in trade, capital, labor, and ideas as well as the concomitant growth of global value chains (GVCs)—has been an important driver of export-led manufacturing in the past. Following decades of rapid growth, the pace of globalization appears to be slowing structurally, with a decline in parts and components trade and a shift in its center of gravity towards Asia.Global trade growth has been strongly subdued in recent years—growing on average by 3 percent per year since 2012—well below the pre-crisis annual average of 7 percent (1987–2007) (Hallward-Driemeier and Nayyar 2017, 80). The share of manufacturing in foreign direct investment (FDI) going to low- and middle- income countries (LMICs) has also been declining. Moreover, protectionist sentiments are on the rise among a wide range of countries seeking to reindustrialize, upgrade, or industrialize their economies and manufacturing sectors. (Hallward-Driemeier and Nayyar 2017, 79). The responsiveness of trade to GDP or trade elasticity to GDP has shifted too; it is much lower than during the decades preceding the financial crisis, when the global trade grew about twice as fast as GDP. The high responsiveness was due to a large number of emerging economies integrating into the global trading system. Nonetheless, OECD projects that the world trade will outpace GDP growth over the next few decades, with the growing share of the global trade occurring among emerging economies, as shown in Figure 1 (Johansson and Olaberría 2014).

 

Figure 1: Projection of the Proportion of Gross Exports as a Share of Trade 

Figure 1: Projection of the Proportion of Gross Exports as a Share of Trade

Source: Johansson and Olaberría 2014. 

Growing Trade Partnerships

Despite the guarded outlook on global trade, trade partnership among different sets of countries continues to grow, with many scheduled to take effect in the near future. For example, the Comprehensive Economic and Trade Agreement (CETA) between Canada and the European Union has been ratified, and a similar trade deal between Japan and the European Union is currently being negotiated. Efforts to resuscitate the Trans-Pacific Partnership (TPP), despite the United States’ withdrawal, recently gained momentum at the 2017 APEC. In addition, the discussion of the Regional Comprehensive Economic Partnership (RCEP) is also on course. In fact, most economies are more open to trade today than in the 1990s (Hallward-Driemeier and Nayyar 2017, 85) and regionalism continues to thrive, fostering opportunities for market integration. Regional integration initiatives are often underpinned by transport, power, and ICT connectivity infrastructure investments, such as the Belt and Road Initiative (BRI), CAREC, ASEAN, SADC, COMESA, and many others.

Regional networks are likely to gain in importance with enhanced connections to existing and emerging hubs. They can be utilized to address global challenges such as in energy, transport, and ICT, for example by using regional grids and effectively utilizing supply-demand complementarities through trade, cross-border investments, and technical cooperation (UNESCAP 2017, vi).
 

The Domination of Cities

The United Nations forecast that global population will grow another 50 percent by 2050, with a growing portion of the population choosing to live in urban areas. By 2030, as many as 60 percent of the global population will live in urban areas (Figure 2). The large majority of this growth will occur in Africa and Asia. Consequently, cities will drive wealth creation through agglomeration and localization effects and city-to-city connectivity will become increasingly important and corridors may span across several cities (e.g., Hong Kong, Shenzhen, Guangzhou). Since centers of innovation tend to be in urban areas, cities are also likely to foster the exchange of ideas and attract talent (Malmberg and Maskell 2002; Padmore and Gibson 1998) (Hallward-Driemeier and Nayyar 2017, 79).
 

Figure 2. World City Populations, 1950 - 2030

Figure 2. World City Populations, 1950-2030
Source: City Geographics 2015. https://citygeographics.org/2015/12/09/mapping-the-global-urban-transformation/

 

What does this mean for connectivity? Location and market size will become critical determinants in the future transport network hierarchy. Premium connectivity services might not be available in all geographical regions, and small markets will continue to be served by traditional transport means with little investment and improvement. This has major implications for regions; the future divide will not be between countries, but between connected (urban) and less-connected regions (rural).

 


REFERENCES

Hallward-Driemeier, Mary and Gaurav Nayyar. 2017. Trouble in the Making: The Future of Manufacturing. Washington, D.C.: World Bank. © World Bank. https://openknowledge.worldbank.org/handle/10986/27946 License: CC BY 3.0 IGO.

Johansson, Asa and Eduardo Olaberría. 2014. “Global Trade and Specialisation Patterns Over the Next 50 Years." OECD Economic Policy Papers 10, OECD Publishing, Paris.
http://dx.doi.org/10.1787/5jz18gpwfxq4-en

Malmberg, Anders and Peter Maskell. 2002. “The Elusive Concept of Localization Economies: Towards a Knowledge-Based Theory of Spatial Clustering.” Environment and Planning A 34 (3): 429-449. https://doi.org/10.1068/a3457.

Padmore, Tim and Hervey Gibson. 1998. “Modelling Systems of Innovation: II. A Framework for Industrial Cluster Analysis in Regions.” Research Policy 26 (6): 625-641.

UNESCAP. 2017. Unlocking the Potential of Regional Economic Cooperation and Integration in South Asia: Potential, Challenges and the Way Forward. Bangkok: United Nations Economic and Social Commission for Asia and the Pacific.

 

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