DHL Global Connectedness Index 2014

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46 3. The Depth of Global Connectedness Figure 3.2 Total Exports of Goods and Services as a Percentage of World GDP, 1820 – 2013 4 35% 30% 25% 20% 15% 10% 5% 0% 1810 1860 1910 1960 2010 Gross exports of goods and services as a percentage of world GDP regularly scaled new heights since the Second World War. This metric increased marginally during 2013 to a level just shy of its 2008 peak. be as prone to obtain goods and services from foreign producers as domestic ones, and the share of imports in total domestic consumption would equal 1 minus the nation’s share of world output. 5 This theoretical benchmark implies exports depth (after removing double-counting, etc.) as high as 90% of world GDP. 4 The economic benefits of continuing to expand trade could be very large. 6 A recent World Economic Forum study reported that world GDP could rise by 4.7% (and trade by 14.5%) “if every country improved just two key supply chain barriers—border administration and transport and communications infrastructure and related services—even halfway to the world’s best practices.” 7 Figure 3.3 zooms in on recent trends in merchandise and services exports depth, breaking out the components underlying the trend depicted in Figure 3.2. Over the past year, rising services trade depth (up from 6.1% to 6.3% of GDP) offset declining merchandise trade depth (down from 25.5% to 25.4% of GDP). Since merchandise trade is allocated a higher weight in the calculation of the trade pillar of the DHL Global Connectedness Index (75% for merchandise, 25% for services), trade pillar depth declined modestly. Emphasis, however, should be placed on how modest the changes in trade depth have been over the past two years. After robustly bouncing back in 2010 and 2011, trade depth has basically stagnated. One major contributor to stagnant trade depth has been the weak macroeconomic conditions prevailing in much of the world. Global GDP growth and trade depth tend to move together, as shown in Figure 3.4. The correlation coefficient between their annual growth rates was 0.75 over the period from 1981 to 2013. 8 Global growth in constant currency terms has slid down from 5.4% in 2010 to 4.1% in 2011, 3.4% in 2012, and 3.3% in 2013. 9 The World Trade Organization (WTO) elaborated: “Several factors contributed to the weakness of trade and output in 2013, including the lingering impact of the EU recession, high unemployment in euro area economies (Germany being a notable exception), and uncertainty about the timing of the Federal Reserve’s winding down of its monetary stimulus in the United States.” 10 Looking forward, the IMF’s latest global growth projections (from October 2014) forecast global growth to remain at 3.3% in 2014, and then to accelerate only modestly to 3.8% in 2015 and 4.0% in 2016. 11 Even before the latest downward revision, trade depth was projected to remain basically stable through 2017 and to remain below its precrisis peak at least through 2019. 12 As WTO Director-General Roberto Azevêdo has emphasized, progress on trade policy liberalization could potentially accelerate a trade recovery. “It’s clear that trade is going to improve as the world economy improves. But I know that just waiting for an automatic increase in trade will not be enough for WTO Members. We can actively support trade growth by updating the rules and reaching new trade agreements.” 13 However, the WTO’s failure even to ratify its Bali Package—itself a partial measure designed to rescue the larger Doha Round—casts significant doubt on the likelihood of such a scenario. 14 The Bali package would have been highly beneficial both for its estimated $1 trillion economic gains as well as the psychological impact 15 16 it would have delivered. Data on individual trade policy measures countries have implemented suggest, in fact, that policy changes are probably slowing the trade recovery rather than accelerating it. Based on the database maintained by Global Trade Alert,
DHL Global Connectedness Index 2014 47 Figure 3.3 Trade Pillar Depth Ratios, 2005 – 2013 30% 25% 20% 15% 10% 5% 0% 2005 2006 2007 2008 2009 2010 2011 2012 2013 Merchandise Exports (% of GDP) Services Exports (% of GDP) Merchandise exports depth declined very slightly during 2013 while services exports depth increased. Figure 3.4 Annual Growth Rates of Real GDP and Exports Depth, 1981 – 2013 16 15% 10% 5% 0% -5% 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 -10% -15% -20% Real GDP Growth Rate Export Depth Growth Rate Global GDP and trade depth growth tend to move together. The correlation coefficient between their annual growth rates was 0.75 over the period from 1981 to 2013. in every year since 2008, more than 70% of the trade policy measures that could be classified as either protectionist or liberalizing were deemed protectionist. 17 The large majority of the protectionist measures were “bailout and trade defense actions.” 18 Weak macroeconomic conditions in much of the world as well as protectionist trade policy measures, thus, seem to have contributed to the stagnation in trade depth and likely to prolong its robust recovery for several years. On a more optimistic note, rising prosperity in emerging economies expands the possibilities to grow trade flows. According to one estimate, roughly one-third of the increase in trade intensity since the early 1990s was caused by economic output becoming less concentrated among a small number of large economies. 19 China’s rebalancing away from export-led growth and toward domestic consumption, however, has itself restrained global trade depth. If China had maintained its 2005 merchandise exports depth of 34% rather than seeing it peak in 2006 at 36% and then decline by 2013 to 24%, that alone could have increased global merchandise exports depth by more than one percentage point. Capital Pillar Depth The capital pillar of the DHL Global Connectedness Index focuses only on equity capital (FDI and portfolio equity), based on research indicating that international equity flows are broadly beneficial for countries but risks associated with high levels of international indebtedness can outweigh the benefits of debt flows. FDI brings technology transfer and functions, like trade, as a channel for strengthening competition in product markets. Opening up to portfolio equity investment has been linked to faster growth. 20 And
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Praise for the DHL Global Connected
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