The retrenchment in cross-border capital flows and trade may be less dire than it seems
Twilight at the Port of Hamburg, Germany.
THE two decades following the Cold War were celebrated and decried as the era of globalization. Cross-border movement of capital, goods, and people expanded inexorably. Between the fall of the Berlin Wall in 1989 and the early onset of the global financial crisis in 2007, international capital flows grew from 5 percent of global GDP to 21 percent; trade leaped from 39 percent to 59 percent; and the number of people living outside their country of birth jumped by more than a quarter.
But today the picture is more complex. International flows of capital have collapsed. Trade has stagnated. Only the cross-border movement of people marches on.
Do these developments portend the start of a new era—perhaps one of deglobalization? Such a reversal is possible: the rapid globalization of the late 19th century gave way to the deglobalization of the early 20th. And yet, in the absence of a shock comparable to World War I or the Great Depression of the 1930s, history seems unlikely to repeat itself. A look beyond the headlines suggests that globalization is changing rather than stagnating or reversing.
Forbes, Kristin, Dennis Reinhardt, and Tomasz Wieladek, 2016, “The Spillovers, Interactions, and (Un)Intended Consequences of Monetary and Regulatory Policies,” NBER Working Paper 22307 (Cambridge, Massachusetts: National Bureau of Economic Research).
Hufbauer, Gary, and Euijin Jung, 2016, “Why Has Trade Stopped Growing? Not Much Liberalization and Lots of Microprotection,” Peterson Institute for International Economics report (Washington).
Lund, Susan, Toos Daruvala, Richard Dobbs, Philipp Härle, Ju-Hon Kwek, and Ricardo Falcón, 2013, Financial Globalization: Retreat or Reset? (Washington: McKinsey Global Institute).
Manyika, James, Susan Lund, Jacques Bughin, Jonathan Woetzel, Kalin Stamenov, and Dhruv Dhingra, 2016, Digital Globalization: The New Era of Global Flows (Washington: McKinsey Global Institute).