Protection is the dog that did not bark. Despite a huge financial crisis, the trend towards integration of the global economy has continued. This is surely remarkable. So why has this happened? Will it last? And what still needs to be done?
Foreign direct investment and trade have risen far more rapidly than global output since 1990, with FDI rising faster even than trade. The FDI stock jumped from 9 per cent of world output in 1990 to 33 per cent in 2012; exports of goods and services went from 20 per cent of world output to 31 per cent. By 2012, these ratios were even above where they had been before the financial crisis. As Arvind Subramanian and Martin Kessler point out in a thought-provoking paper, both trade and FDI are also substantially bigger, relative to global GDP, than ever before, with both goods and services increasingly freely traded*. (See charts.)
“Hyperglobalisation” contributed hugely to emerging countries catching up with the living standards of high-income nations in the “great convergence”. So: “Until the late 1990s, only about 30 per cent of the developing world (21 of 72 countries) was catching up with the economic frontier (the US), and the rate of catch-up was about 1.5 per cent per head per year.”