DHL Global Connectedness Index 2014

DHL Global Connectedness Index 2014
15
Figure 1.3
Global Average Distance (kilometers) Traversed by International Interactions, 2013 or most recent year available 22
People Information Capital Trade
Merchandise Trade
Foreign Direct Investment Stocks
Portfolio Equity Stocks
Telephone Calls
Printed Publications Trade
Migrants
Students
Tourists
Average Distance Between Randomly Selected Countries
0 1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000 9,00010,000
The weighted average distance traversed by interactions covered by the index was 4,904 kilometers (3,047 miles) in 2013, about half the distance between
two randomly selected countries.
current depth also implies very significant room for deeper
global connectedness that could accelerate growth. The
potential gains add up to trillions of dollars. 23 Depth trends
along all of the pillars and components of the index are
covered in Chapter 3 of this report. 22
Declining breadth at the global level is neither necessarily
positive nor negative. It is natural and efficient for countries’
international interactions to be somewhat focused on
partners with which they share cultural, administrative/
political, geographic, and economic (“CAGE”) proximity
and similarity. However, such focus can be either overdone
or underdone, and so must be analyzed on a country-bycountry
basis.
Further examination of the breadth trends, covered in
Chapter 4, shows the decline in global breadth to be driven
by falling breadth in advanced economies: the breadth of
emerging economies’ international interactions continues
to rise (albeit from significantly lower levels). In other
words, the international interactions of advanced economies
are not keeping up with the big shift of economic
activity to emerging economies. This is consistent with
mounting evidence that advanced economies—at both the
country and company levels—have faced significant challenges
in tapping into growth opportunities in emerging
economies. Changing this will require advanced economies
to boost their capacities to bridge the CAGE distances that
separate them from emerging economies.
Figure 1.5 breaks down the combined breadth-and-depth
trends since 2005 pillar by pillar (separate depth and
breadth trends by pillar are covered in Chapters 3 and 4).
The information pillar continues to scale new heights: it
is the only pillar that has risen monotonically since it was
first measured. Its rise has been driven, in particular, by
the rising depth of international internet bandwidth and
international telephone calls—although the depth data
presented above remind us that this expanded technological
connectivity is still primarily used for domestic, not
international, communication.
Trade was the most volatile pillar over the period studied,
and its gyrations were driven by depth rather than breadth.
Global connectedness on the trade pillar collapsed in the
aftermath of the financial crisis, partially recovered by
2011, and then went back into decline. The growth of trade
depth was held back by the slow pace of recovery across
many advanced economies and decelerating growth in
many emerging economies—and, probably, protectionism
(as elaborated in Chapter 3).
The capital pillar also exhibited significant volatility over
2005–2013, and had capital flows not been smoothed out by
being averaged over three years, this would have been the
most volatile pillar of all. The capital pillar was hit hard,
like trade, by the crisis but has grown since 2010—particularly
in 2013, when the depth of the world’s FDI and
portfolio equity stocks recorded their highest levels over
the period studied. The growth of international portfolio
equity investment stocks has been particularly dramatic,
soaring from 25% of world stock market capitalization in
2005 to 39% in 2013. Looking across breadth and depth,
however, capital flows remain below their pre-crisis peaks.