CSCMP's Supply Chain Quarterly
March 29, 2020
Forward Thinking

Report: global "connectedness" index dipped in 2018 under pressures of trade turmoil

DHL and NYU researchers say the slump could have been worse, as most economies stayed resilient, and the world is less globalized than many people think.

International trade turmoil in recent months has triggered shrinking international capital flows, causing "global connectedness" to dip slightly in 2018, but not to show signs of a broad reversal of globalization so far, according to a study released Wednesday by transportation and logistics provider DHL and the NYU Stern School of Business.

The study is the 2019 update of the DHL Global Connectedness Index (GCI), which highlights key developments in international flows of capital, trade, information, and people. That index retreated modestly last year, but despite strong headwinds in global geopolitics and trade, the GCI stayed close to its record high of 2017, researchers said.

DHL Global Connected Index, 2001-2018

"International exchange empowers people and businesses around the world to collaborate and seize new opportunities," John Pearson, CEO of DHL Express, said in a release. "While current geopolitical tensions could seriously disrupt global connectedness, this 2019 update finds that most international flows have remained surprisingly resilient so far. Ultimately, what we're seeing today is the evolution of globalization, not its decline."

DHL Global Connected Index, 2019 updateThe report also features a deep dive into the U.S.-China trading relationship, tracing the sharp decline in U.S.-China trade, as well as an examination of recent claims that globalization is giving way to regionalization.

"Our analysis does not confirm a robust regionalization trend. Instead, we see that the average distance across which countries trade has held steady since 2012," Steven A. Altman, Senior Research Scholar at the NYU Stern School of Business and the report's lead author, said in a release. "While fraying relations between major economies could lead to a fracturing along regional lines, such a shift has not yet conclusively taken place."

In the meantime, the index continues to show a gradual decline. The share of global output traded across national borders fell during the first half of 2019, and while trade volume growth is likely to remain positive this year, it is not expected to keep pace with GDP growth. That trend is now forecast to stay on track for a modest decline through 2020.

Looking ahead, the 2019 update notes that all four flows measured by the DHL Global Connectedness Index— trade, capital, information and people—are currently running up against powerful headwinds. Rising barriers and uncertainty about future openness are starting to carry significant costs, the authors said.

Despite those difficulties, there is plenty of room for growth, the report concludes. While the world is more connected than at almost any previous point in history, most business still takes place within rather than across national borders. Many people do not realize how limited global connectedness actually is, leading them to underestimate the significant potential available from further increases in global connectedness.

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