Economic Globalization and DeglobalizationTrends during 2005-2019

Emir Eteria

Journal number 4 ∘ Emir Eteria ∘
Economic Globalization and DeglobalizationTrends during 2005-2019

DOI: 10.36172/EKONOMISTI.2022.XVIII.04.Eteria

Abstract: Deglobalization trends in the world economy are the most discussed issues since the global financial crisis of 2007-2008. Globalization of trade and capital are the foundations of economic globalization. It is noteworthy that the EU, NAFTA and ASEAN (plus Japan, China and Republic of Korea) are major integration groups and countries in the modern world economy, which control a significant part of world trade and Foreign Direct Investments (FDI). Therefore, deglobalization of trade and capital movement should be observed in the trade and FDI data of these integration groups/countries. However, analyzed data on trade and investments for the period of 2005-2019 does not reveal any lasting declining trends, which could be considered as a sign of irreversible deglobalization of the world economy.

Keywords: Globalization, Deglobalization, Trade, Investments, EU, NAFTA, ASEAN.

1. Introduction

The period from the beginning of the 1990s till the 2007-2008s global financial crisis could be considered as a period of triumph of neoliberal economic globalization. Noteworthy that most of the publications on globalization were issued during this period. In light of the global financial crisis debates on the inevitability of deglobalization of the economy have intensified. It should be noted that COVID-19 further reinforced these debates. The major causes of the increase of the deglobalization debates were the dramatic results of the global financial crisis for developed as well as developing countries on the one hand and the increasing gap between developed and developing countries on the other. Therefore, a critical approach toward neoliberal globalization has become attractive for economists as well as non-economists. Noteworthy that despite active discussions on deglobalization and many publications on this issue, there isn’t a common opinion among fierce critics of globalization on the inevitability of deglobalization. It is clear, that Globalization provoked many issues related to inequality as well as increasing gap between countries, that enhanced controversies about globalization.

It has been widely recognized that globalization has changed many aspects of the economic performance of developed as well as developing countries. Globalization has many closely interrelated dimensions such as economic, political, social, technological, cultural, etc. However, economic globalization could be considered as a basis for the development of other dimensions of globalization. Noteworthy that opinions on the essence of economic globalization as well as the effects of globalization on economic performance differ significantly among scholars of globalization.

It is clear, that trade and investments are driving forces of economic globalization and therefore, deglobalization processes first of all should be reflected in the data on trade and investments. Accordingly, in the first part of the article key features of globalization and deglobalization are reviewed, next parts of the article are devoted to the analysis of trade and investment data by selected integration groups/countries (EU, NAFTA, ASEAN (plus Japan, China and Republic of Korea)). Therefore, the article focuses on the regional and global level of analysis rather than the country level. A country-level analysis always does not reflect adequately the dynamics of developments in the world economy such as globalization and deglobalization. In addition, at the country level signs of deglobalization could be observed due to internal economic developments and policy changes rather than fluctuations in the international economic environment. According to the data from the United Nations Trade and Development Conference (UNCTAD) major share (more than 70%) of world merchandise exports as well as imports belongs to the EU, NAFTA and ASEAN (plus China, Japan and Republic of Korea). Moreover, in 2005 almost 80% of Foreign Direct Investments belonged to the EU, NAFTA and ASEAN (plus China, Japan and Republic of Korea). Therefore, the article is focused on the trade and investment performance of these regional integration groups/countries. It is clear, that deglobalization tendencies if any, should be reflected in the trade and investments data of these regional integration groups. However, it also should be noted that the finding of some pieces of evidence of deglobalization processes does not mean rejection of globalization itself.

2. Economic Globalization and Deglobalization: a short review of key definitions

To confirm or reject the deglobalization process the first step is to describe globalization itself. Since the 1990s the word “globalization” has been frequently used in many sciences from economics and business studies to sociology, from political sciences to history, geography, etc. It should be noted that there is no single definition of globalization [see IMF, 1997, 2008; World Bank, 1997; Hirst and Thompson, 1999; Held and McGrew (eds), 2000; Castels, 2000; Frenkel, 2000; Stiglitz, 2002, 2007; Frieden, 2006; Bhagwati, 2004; Wolf, 2005; Sholte, 2005; Friedman, 2007; Di Mauro., Dees., and McKibbin (eds), 2008; Rodrik, 2011; Lechner and Boli (eds), 2015; Baldwin, 2016; Roberts and Lamp, 2021; etc].

At the beginning of the 1990s, as Frieden [2006: 412] pointed out, “interests, and the ideas, favorable to economic globalization dominated world economics and politics. The globe was once again capitalist, and capitalism was once again Global”. Noteworthy that to some extent, Globalization has replaced the word “internationalization”, which was used to describe and explain increased economic relations between countries. Since then many economists, as well as non-economists, have defined globalization in various ways. As Scholte [2005: 16-17] pointed out, Globalization has been described as internationalization, liberalization, universalization, westernization, etc., however, “these definitions are in some ways related and to some extent overlapping, but their emphases are substantially different”. Accordingly, various definitions of globalization demonstrate the comprehensive nature of the globalization process and therefore, Social scientists have applied different approaches to globalization. However, some scholars deny even the existence of globalization and argue that the modern world economy is internationalized, not globalized [Hirst&Thompson, 1999]. It is clear, that economists mostly focus on the economic dimension of globalization and accordingly, there are many definitions of economic Globalization, including definitions by International economic organizations, such as International Monetary Fund (IMF). It also should be noted there isn't a common view on the effects of globalization on economic performance of developed as well as developing countries inside the economic profession. Many scholars (Stiglitz, Rodrik, Hirst, Thompson, etc.) express their skeptical views on globalization, especially on the neoliberal approach to globalization. However, as Roberts and Lamp [2021: 3] pointed out “From the collapse of the Soviet Union until the global financial crisis in 2008, the dominant narrative in the West highlighted the benefits of economic globalization”.

Among many definitions of globalization, this article relays three of them, which are interrelated. The first definition comes from the International Monetary Fund, which describes globalization as “…growing economic interdependence of countries worldwide through the increasing volume and variety of cross-border transactions in goods and services and of international capital flows, and also through the more rapid and widespread diffusion of technology” [IMF, 1997: 45]. In 2008s publication on globalization IMF describes globalization as “increasing integration of economies around the world, particularly through the movement of goods, services, and capital across borders” (IMF, 2008). The second definition of globalization belongs to Stiglitz, a skeptic of globalization, especially on neoliberal globalization. According to Stiglitz [2007: 4] economic globalization “entails the closer economic integration of the countries of the world through the increased flow of goods and services, capital, and even labour”. The third definitions belong to Bhagvati, who is a proponent of economic globalization. According to Bhagwati economic globalization is “integration of national economies into the international economy through trade, direct foreign investment (by corporations and multinationals), short-term capital flows, international flows of workers and humanity generally, and flows of technology [Bhagwati, 2004: 3]. Increasing integration and interdependence are a result of trade liberalization starting with the signing of the General Agreement on Tariffs and Trade (GATT). It is clear that without this agreement there would be no economic globalization at all. In the framework of the GATT all achievements on trade liberalization in combination with technological developments formed a basis for globalization, which at the end of the 1980s become inevitable. Therefore, trade globalization is the first and most developed form of economic globalization in general. The next form of economic globalization includes the globalization of capital movement, which intensified since the beginning of the 1990s.

As mentioned before publications on deglobalization have drastically increased since the Global Financial Crisis of 2007-2008. As in the case of globalization, there are also many descriptions of deglobalization. Witt [2019: 1054] describes deglobalization as “…the process of weakening interdependence among nations”. According to this Author “…we should observe that, on average, countries rely less on goods and services or on investment from other countries, relative to levels of domestic economic activity” and “…. trade and investment flows as percentages of GDP should be declining” [Witt, 2019: 1055]. Witt analyses the Deglobalization process in the light of two major theories in International Relations (Liberalism and Realism) and their implications for International Business. Herrero [2019: 42] in the article “From Globalization to Deglobalization: Zooming into Trade” concludes that “After decades of increasing globalization both in trade, capital flows but even people to people movements, it seems the trend has turned towards deglobalization”. Kim et al. [2020: 83] analyzing deglobalization processes based on panel data from 1970 to 2017 for developed and developing countries find that “Deglobalization is more apparent in developed countries than in developing countries, and the deglobalization trend will continue in diverse formats”. Flejterski [2018: 85] analyzing globalization and deglobalization processes supposes that “One thing is certain - globalization and deglobalization will long be the subject of great controversy, and sometimes also spectacular protests”.

According to these definitions, the keywords describing globalization are integration and interdependence, while in the case of deglobalization, the word “integration” should be replaced by disintegration or fragmentation and the word “interdependence” by lessening interdependence among countries in the world economy.

It is clear, that increasing trade and capital movement among countries are two main determinants of economic globalization, which further increases integration into the world economy as well as economic interdependence among countries. Therefore, two major dimensions of economic globalization are trade globalization and globalization of capital movement. Accordingly, deglobalization means decreasing trade among countries and country groups on the one hand and a declining trend of capital movement on the other. The next step is to analyze the trade and investment dynamics of selected country groups/countries.

3. Major Developments in Trade Globalization during 2005-2019

As mentioned above more than 70% of world merchandise exports/imports belong to the EU, NAFTA and ASEAN (plus China, Japan and Republic of Korea). To determine trade globalization trends the data of these regional integration groups and respective countries is analyzed. Namely, trade globalization is measured based on the data on exports-imports as a percentage of the total world, the annual average growth rates of exports and data on trade openness, such as total trade as a percentage of GDP. Selected data is appropriate to reveal any deglobalization tendencies in the framework of these regional integration groups/countries. Regarding the capital globalization data on World FDI Inflows and outflows as well as a share of the above-mentioned regional integration groups in the world inward and outward FDI had been analyzed. The analyzed data range includes the 2005-2019 years.

In 2005, the share of the abovementioned regional integration groups and countries in world merchandise exports-imports accounted for 74.5% and 78.5% respectively [UCTAD Statistics]. In 2019, the combined share of these integration groups/countries in world merchandise export was 73.5%, while the share of imports was 74.7%. Therefore, according to the data on world merchandise trade, there was no sharp decline in the share of the major integration groups. In particular, in 2019 the EU’s share in world merchandise exports was 33.0% compared to 38.7% in 2005, NAFTA’s share was 13.4% compared to 14.0% in 2005, while ASEAN’s share (plus China, Japan and Republic of Korea) was 27.1% compared to 21.8% in 2005 (Figure 1).

Figure 1. Share in World Merchandize Exports (%)