Globalization benefits everyone: study

According to a new study measuring the gains brought about by globalization, everybody wins — especially those in industrialized countries. Yet the gains are unevenly distributed, both between and within countries.

These are the key findings of the Globalization Report 2018, carried out by Prognos AG for the Bertelsmann Foundation. The report, which closely follows the KOF globalization index of the Swiss Federal Institute of Technology ETH Zürich, analyzes the welfare gains of increasing globalization on the basis of real gross domestic product per capita in 42 industrialized and emerging countries for the period between 1990 to 2016.

While real GDP per capita growth is positive in all countries surveyed, the amount differs significantly from country to country.

Small, highly industrialized nations like Switzerland and Belgium, which have the highest globalization index values, outperform emerging countries like Argentina and China, which have relatively low values, mainly due to trade barriers.

Also read: Germans divided over impact of globalization

This doesn't mean, however, that people in emerging countries lose out.

"Globalization is not a zero-sum game," Thieß Petersen, senior advisor at Bertelsmann Foundation, told DW. "Everybody wins, but the real income gains per capita are unevenly distributed globally, not only between but also within countries."

In Bertelsmann's methodology, each country receives an index value ranging from 0 to 100. The higher the index value, the greater the interdependence of this country with other countries. If the value of the globalization index increases by one point, the growth rate of real GDP per capita increases by around 0.3 percentage points.

Indicators on economic globalization, which include imports and exports, foreign direct investment (FDI) and trade barriers like tariffs, are weighted 60 percent; aspects of social globalization like tourism, number of people with a migration background, as well as political globalization, such as the number of memberships in international organizations and embassies, are each weighed 20 percent.

Different baseline

According to the report, the main reason for low growth rates in the emerging countries is the low starting level of GDP per capita in 1990, the first year of measurement. Back then, countries like China and India were only at the "very beginning of a dramatic growth curve" and thus performed worse overall in terms of absolute gains than industrialized countries, which were already "more globally interconnected" at that time.

To put things into perspective, while China has enjoyed GDP growth of roughly 10 percent from 1990 until 2016 and leads all countries in exports, its globalization-related per capita gains are a mere €2,000 ($2,362) over the same period.

In Germany, meanwhile, that figure is 15 times higher (€30,000). However, China tops the ranking when putting the added globalization-related GDP gains over the years in relation to GDP per capita in 1990. In this scenario, China boasts a five-fold increase, whereas Germany "only" exhibits a 1.5-fold gain.

"This means that gains brought about by globalization are much more significant for China than Germany and the rest of the countries surveyed," Petersen told DW.

In terms of purchasing-power parity, on the other hand, industrialized nations outperform developing countries.

'Better distribution of globalization gains'

According to the study, the unequal distribution of globalization gains is one of globalization's "biggest construction sites."

"Since industrialized countries have had a higher economic performance per capita for a long time," the authors write, "the absolute globalization gains are also significantly higher and difficult for the emerging countries to catch up."

According to Petersen, this presumably won't change "in the foreseeable future."

While taken together, globalization benefits everyone, uneven distribution could lead to criticism and, in turn, protectionism. This scenario has no winners, Petersen argued. Those who implement protectionism measures like the US, which recently imposed economic sanctions and higher tariffs on its European allies as well as other economic rivals such as China and Russia, will be hit particularly hard, according to Petersen. While specific industries might benefit short-term from such measures, it harms the rest of the economy — and the world, he added.

Also read: WTO: Weary Trade Organization?

"Measures like the ones the US put in place in the early 2000s to protect the domestic steel industry led to higher prices and higher production costs for steel-producing companies," he said. As a result, the whole industry suffered.

Although the Bertelsmann study doesn't assess (income) disparities within countries, Petersen said globalization exacerbates them, especially among industrialized countries. "You'll have sectors and groups of people who will automatically benefit, but also those that lose out," Petersen said.

One possible way to distribute gains more equally, the report suggests, is reviving WTO trade rounds. "We must promote an international economic order that does not promote the right of the strongest, but sets common binding rules and standards."