There is a strong potential for global connectedness to expand prosperity and enhance lives in all countries, no matter their economic status. These are some of the reasons why we should consider how countries can boost their connections with the rest of the world.
Fortunately, DHL’s Connecting to the world report is based on unique tracking of international trade, capital, information, and people flow, highlighting five key policy areas for global connectedness.
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The background
The concept of globalization should not be viewed as an ideology but rather as a tool that has been improved in the past and can be improved in the future. And what’s important, stronger international cooperation is a common enabler of many projects to improve globalization.
Global flows are not developed from scratch by countries.
Several factors that are largely beyond the direct control of policymakers have a significant impact on levels of connectedness, most notably:
- Economic development
- Country size
- Proximity to foreign markets
Over 70% of the variation in levels of connectedness among countries can be explained by these three characteristics.
It’s a fact that globally connected countries tend to be more prosperous. So is it any wonder that international exchange is most active among the richest countries and least active among the poorest countries? Rather not, because by investing more in infrastructure to facilitate international trade, certain countries can have more connections and thus become richer.
Source: Connecting to the world, DHL’s report
There are many benefits of being a more connected country. These include, for example, an increase in productivity. This productivity growth is boosted by international connections in a variety of ways, for example, by:
- Spreading ideas and technologies
- Fostering ongoing innovation
- A competition that pushes the progress
But, there are also some concerns. Three of the most prominent ones revolve around inequality, environmental harm, and economic risks.
5 key drivers of connectedness
#1 Peace and security
Peace and security are fundamental building blocks of an appealing environment and, by extension, the foundation for a country’s ability to develop strong global connections. A dangerous environment, however, serves as a powerful disconnector, keeping countries from taking advantage of international opportunities. Moreover, international flows may be adversely affected by regional conflicts. Often, neighboring countries offer the best options for positive interactions for nations at war.
Source: Connecting to the world, DHL’s report
#2 Domestic business environment
With peace and security as its foundation, an attractive domestic environment can powerfully boost global connectivity. More robust international flows can be achieved by starting at home. Typically, companies focus first on a location’s attractiveness when deciding where to expand internationally, then analyze its accessibility if the market opportunity appears compelling. It is not uncommon for firms to find ways to access markets despite costly or cumbersome restrictions on inter-national flow, even for attractive options. Therefore, when multiple aspects of domestic attractiveness are addressed together, maximum benefits can be realized.
Source: Connecting to the world, DHL’s report
#3 International openness
Increasing a country’s global connectedness is also possible through policies that directly target openness to international flows. However, lowering formal barriers such as tariffs is only one approach. Many countries can achieve even greater gains in other areas, such as improving logistics performance or export/import processes. There are several types of international flows that globalization policies can influence, and they can be pursued unilaterally or in cooperation with other nations.
Based on the strong positive relationship between the overall index of openness policies and global connectedness, we can examine the effects of specific policy measures, starting with those focused on trade.
Source: Connecting to the world, DHL’s report
#4 Regional integration
Approximately half of all international flows occur within rather than between world regions, making regional integration policies particularly important. However, globalization is not a substitute for regional integration but rather a foundation for a more connected world. International flows are further supported by regional trade blocs and other institutions that take advantage of the natural advantages of regional business activity.
Source: Connecting to the world, DHL’s report
#5 Public support
Global connectedness should be expanded beyond public policy alone to consider public perceptions and preferences, given powerful anti-globalization movements in many countries. It is essential to address cultural and economic concerns simultaneously, and efforts to do so should focus on dispelling myths that distort the globalization debate. Even in countries where globalization opposers dominate national politics, key elements of globalization, such as international trade, enjoy substantial public support.
What’s more, support from the public is more prevalent when it involves flows to or from a country that offers a similar level of openness in return and is not considered a geopolitical rival.
Source: Connecting to the world, DHL’s report
The Netherlands case study
The Netherlands has been the top-ranked country on the DHL Global Connectedness Index since 2005 and excels in all five policy areas.
Source: Connecting to the world, DHL’s report
As one of the world’s most advanced economies, with a strategic location for connections within and beyond Europe, the Netherlands has excellent structural conditions for global connectedness. This country had the world’s 12th highest GDP per capita in 2019 ($52,448) and ranked third in the world in proximity to foreign markets, behind only its neighbors Luxembourg and Belgium.
In terms of peace and security environment, the Netherlands stands strong. It also complements its attractive domestic environment with policies that attract and facilitate international flows. Moreover, this country established itself at the center of European economic integration as a founding member of the European Coal and Steel Community.
Additionally, public support for globalization in the Netherlands tends to be high, despite anti-globalization and Eurosceptic movements.
Source: Connecting to the world, DHL’s report
Key takeaways from 2021
Some essential takeaways from 2021 are as follows:
- Globalization has not collapsed as a result of COVID-19.
- Solid increases in goods trade boosted the global recovery despite capacity challenges.
- Portfolio equity flows stabilized in mid-2020, and foreign direct investment rebounded sharply in 2021 after the pandemic.
- At the onset of the pandemic, digital information flows spiked.
- Global people flows were hit hardest by the pandemic, and they are recovering most slowly.
- During the pandemic, long-distance trade has grown faster than short-distance trade.
- Decoupling between the U.S. and China decreased in 2020 as a pandemic boosted trade.
- In the poorest countries, the recovery of globalization is slower.
- International flows are strongest among neighboring countries, while domestic activity is much higher than global activity.
- It could speed up the world’s recovery from Covid-19 if global connectivity is strengthened.
Conclusions
There are many benefits to living in a more connected world, and this report explored ways for countries to expand their gains from global connectivity.
People can do a lot to connect more productively to opportunities beyond their national borders, but foremost they need to follow these 5 key policy areas provided in this shortened report. Then there is a big chance they will emulate the success of the Netherlands.
