Globalization and its impact on international trade

Since the 1990s, lower tariffs, resulting from new information technologies and international trade agreements, have greatly accelerated globalization. This increase in globalization can be analyzed through its impact on GDP, tariff rates, as well as its impact on the export and import of goods and services.

Thierry Warin https://www.nuance-r.com/principalInvestigator.html (HEC Montréal & Cirano (Montréal))
06-08-2020

Table of Contents


Three centuries of globalization have irrevocably altered our economies. This globalization materialized in two stages.(Baldwin 2012) The first stage was characterized by the industrialization of northern countries. Innovation and economies of scale gave these countries comparative advantages to their southern counterparts. Technological progress and learning-by-doing allowed for a great increase in northern productivity, even as southern countries experienced stagnation or negative development.(Baldwin, Martin, and Ottaviano 2001) This period was marked by a widening of the gap between rich and poor countries.

During the latter half of the 20th century, new information and communication technologies (ICT) and existing north-south wage differentials triggered the second stage of globalization. ICTs enabled companies, hitherto limited by distance and geography, to take advantage of low-cost labour in southern countries. These relocations - transpiring primarily in the manufacturing sector but becoming increasingly common in the service sector (OECD, 2006) - combined with the cross-border mobility of new technologies have reversed past globalization trends by allowing for the re-industrialization of the Global South.

Dimensions of globalization

Though globalization emerged in two stages, since the early 1970s, it has continued to develop in three key dimensions: economic, social, and political. The KOF Index of Globalization measures these three dimensions, all three of which underwent a rapid post-Cold War acceleration.

KOF index

Opening borders

The opening of borders has also contributed to the propagation of globalization; bilateral and multilateral agreements have allowed for the reduction of tariff and non-tariff barriers to international trade.

Tariff rates

In twenty years, tariff rates decreased by -38% in high-income countries and by -46% in low-income countries.

A new reality of globalization

Technology transfers have enabled emerging countries to increase their productivity in a number of manufacturing sectors. These countries, particularly China, India, and Brazil, have also seen significant GDP growth. This new reality of globalization is moreover accompanied by a change in the import and export rates of goods and services.

Gross Domestic Product

In 2019, China, India, and Brazil rank among the top 10 countries by GDP. Their respective GDPs total $ 14, 2.9 and 1.8 trillion in current USD. China’s GDP ranks in second place below the United States’ (in current USD) of $ 21 trillion and above Japon’s $ 5.1 trillion.

Exports of goods and services

In 2019, the US and China’s exports of goods and services (in current USD) equaled $ and 2.6 trillion, respectively, while those of Japan were $ trillion. Exports from these three countries increased by 129% (US), 949% (China), and 77% (Japan) compared to the year 2000. Another important player in terms of B&S exports is also Germany with a total of 1.8 US$ 1.8 trillion current in 2019 with a 212% increase since 2000.

Imports of goods and services

In 2019, the imports of goods and services (in current USD) to the US amounted to $ trillion, while those to China reached $ 2.5 trillion, and those to Japan were $ trillion. Imports to these countries increased respectively by 114%, 1036%, and 102% compared to 2000. Another important player in terms of B&S imports is also Germany with a total of 1.6 US$ 1.8 trillion current in 2019 with a 173% increase since 2000.

Developed countries face a new landscape of international trade, one they must thoroughly understand and adeptly navigate if they wish to remain globally competitive.

Tools

This section provides access to the resources that were used to create this article.

Baldwin, Richard. 2012. “WTO 2.0: Thinking Ahead on Global Trade Governance.” VoxEU.org. https://voxeu.org/article/wto-20-thinking-ahead-global-trade-governance.

Baldwin, Richard, Philippe Martin, and Gianmarco Ottaviano. 2001. “Global Income Divergence, Trade, and Industrialization: The Geography of Growth Take-Offs.” Journal of Economic Growth 6 (1): 5–37. https://econpapers.repec.org/article/kapjecgro/v_3a6_3ay_3a2001_3ai_3a1_3ap_3a5-37.htm.

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Citation

For attribution, please cite this work as

Warin, "Data Science for International Business: Globalization and its impact on international trade", ds4ib.org, 2020

BibTeX citation

@article{warin2020trade,
  author = {Warin, Thierry},
  title = {Data Science for International Business: Globalization and its impact on international trade},
  journal = {ds4ib.org},
  year = {2020},
  note = {https://ds4ib.org/posts/2020-06-07-globalization-trade/},
  doi = {10.6084/m9.figshare.12485789.v1}
}