Globalization Still Favors the Rich

According to a new McKinsey report on global flows, developed nations benefit more from globalization than emerging ones do. But developing countries are doing their best to catch up.
Globalization has been good to Germany. Photographer: Krisztian Bocsi/Bloomberg

Reading between the lines of a just-released optimistic report on global flows of goods, services and finance by the McKinsey Global Institute, one can conclude that the developed world is benefiting more from globalization than the developing one. Emerging economies, however, are working doggedly to reverse that trend.

The institute, an arm of the McKinsey & Co. management consultancy, has accumulated a detailed database on cross-border flows between 195 countries from 1980 to 2012. It says the global flows in 2012 reached $26 trillion, or 36 percent of global gross domestic product, a 50 percent bigger share than in 1990. According to the report, the cross-border flows account for 15 to 25 percent of global economic growth each year, but the most "connected" countries reap most of the benefits.

That list is topped by Germany, Hong Kong and the U.S. The only developing country in the top 10 is Russia, and that is probably a statistical fluke. Russia has been propelled into ninth place by big migration numbers. But those numbers are an ambiguous imperial legacy rather than an achievement: Russia has a visa-free regime with its formerly Soviet neighbors.

The emerging economies now account for a much bigger share of all global flows than they did in 1990:

The quality and direction of these flows, however, matters more than their size, and these are, for now, in favor of the developed world.

In finance, the emerging economies account for 37 percent of global inflows but 38 percent of outflows. Money from the poorer countries is flowing into richer ones, in large part due to the active purchase of foreign assets by central banks. Those purchases grew 11 percent a year from 2002 to 2012.

In goods trade, the emerging world's share is 41 percent of exports and 38 percent of imports, but if commodities and raw materials are taken out, exports become smaller than imports -- $4.2 trillion compared with $4.3 trillion. On the surface, that situation is improving because emerging markets now account for a third of what McKinsey terms "knowledge-intensive flows" -- those in goods and services that require more research and development than labor. That relatively high share, however, is mostly a reflection of China's huge electronics exports. McKinsey's definition of "knowledge-intensive" leads to a bit of a distortion. Cheap televisions and even mobile phones are no more "knowledge-intensive" than toys or textiles, but they vastly improve the emerging world's statistics.

We think of the Internet as the great equalizer, but in fact, despite large numbers of Internet users, emerging countries account for a disproportionately small share of cross-border traffic in data and communications:

McKinsey says this is mainly because of infrastructure problems such as less access to broadband, but there are other important reasons such as language barriers and the prevalence of local platforms, such as Yandex in Russia or Alibaba in China. For 2004 to 2009, McKinsey attributes 1.5 percent of GDP growth for the BRIC quartet (Brazil, Russia, India and China) to the Internet, compared with much larger percentages for developed economies.

The developed world has taken better advantage of globalization so far, but the emerging economies are no longer its passive resource base. More and more cross-border trade is occurring among them, rather than across the north-south divide:

Besides, the emerging world is actively learning. China and India together account for 28 percent of the total number of students sent abroad at 21 percent and 7 percent, respectively. They go mainly to the U.S., the U.K., France, Australia and Germany. Their job is to close the gap, to make their countries greater beneficiaries of globalization. The day when these nations are done emerging is coming. For now, the developed world can still enjoy the benefits of the order it has created.

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    Leonid Bershidsky at

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