- Covid-19 has not caused globalization to collapse, with the DHL Global Connectedness Index declining only modestly in 2020 and on track to rise in 2021
- Trade in goods has surged to well above pre-pandemic levels, supporting global recovery even as capacity challenges and trade tensions persist
- The pandemic dealt a major blow to international capital flows, but portfolio equity flows stabilized in mid-2020 and foreign direct investment began a strong rebound in 2021
- The pandemic hit international people flows the hardest, and they are on track to recover the slowest
- Global flow patterns show no evidence of a major shift from globalization to regionalization
COVID-19 has not has not caused globalization to collapse as many expected, but the pandemic also exposed longstanding vulnerabilities, such as supply chain bottlenecks and slower recoveries in low-income countries, according to a new study of global connectedness.
The DHL Global Connectedness Index 2021 Update said that more than a year and a half since the onset of the pandemic, “data clearly refute early speculation that Covid-19 would spell the end of globalization.”
The Index declined modestly in 2020 and is on track to rise in 2021, the study, launched November 30, said. The DHL Global Connectedness Index measures globalization based on international flows of trade, capital, information, and people.
The update found that COVID-19 blow to globalization has turned out to be much smaller than the decline caused by the 2008-09 global financial crisis, and global connectedness is likely to increase in 2021 and remains close to its all-time high.
“World trade in goods has soared to well above pre-pandemic levels, and most other types of international flows are clearly recovering. Of the flows covered in the DHL Global Connectedness Index, only international travel has remained severely depressed in 2021,” the report said.
“Nonetheless, the pandemic has also highlighted vulnerabilities that should be addressed in order to fortify and expand the benefits of global connectedness.”
As the COVID-19 pandemic swept the world in early 2020, trade in goods plummeted at the fastest pace on record, but trade began rebounding strongly in mid-2020 and, by the end of the year, had even surpassed pre-pandemic levels. By early 2021, global trade volumes were setting new records. Trade in products used to fight COVID-19 soared, helping to ameliorate pandemic-driven shortages.
Trade in services suffered a larger decline than trade in goods and has been slower to recover. However, the drop in services trade was driven almost entirely by steep falls in travel and transportation services. Trade in most other types of services has been much more resilient.
Moreover, forecasts call for trade in both goods and services to grow faster than GDP in 2021 and 2022, expanding trade’s contribution to the global economy.
Globalization showcases resilience
The report said that contrary to predictions that the pandemic would cause a shift from globalization to regionalization, international flows between different regions grew faster than flows within regions during the past year.
“Trade, in particular, stretched out over longer distances as major Western economies relied more on imports from Asia,” the paper said.
The surge in international trade since mid-2020 is particularly noteworthy, considering the severe disruptions the pandemic has caused to supply chains across many industries.
Port shutdowns, container shortages, and a six-day blockage of the Suez Canal dominated the headlines. But the global volume of trade in goods still rose to 5% above its pre-pandemic level.
“The swift recoveries of trade and other flows highlight how international connections expand our capacity to overcome challenges,” said study co-author Dr. Steven Altman, senior research scholar and director of the DHL Initiative on Globalization at New York University’s Stern School of Business.
The study said several factors contributed to the swift rebound of global trade. Most notably, demand for traded goods surged in response to economic stimulus measures and shifts in spending patterns from in-person services to heavily traded goods, such as electronics and medical supplies.
The report also showed that the modest level of US-China decoupling before the onset of the COVID-19 crisis went into reverse in 2020, as these economic giants traded more with each other during the pandemic.
Alongside trade, international capital and information flows also played crucial roles in the response to the pandemic.
International capital flows quickly stabilized in 2020 in response to bold action by governments and central banks, which prevented the global public health crisis from turning into a global financial crisis. Digital information flows helped the world to stay connected from a distance, while enabling crucial advances such as the rapid development, production, and distribution of COVID-19 vaccines.
In contrast, people flows were strictly limited due to their potential to spread the virus and its variants. All destinations worldwide implemented some form of travel restrictions, and 29% still had their borders completely closed to international tourism as of June 2021.
COVID-19 also exposed longstanding vulnerabilities that demand attention from policymakers and business leaders.
The world’s poorest countries are still dangerously disconnected, and evidence shows they are falling even further behind in the recovery. For countries at the bottom of the global income distribution, trade and FDI inflows were still below pre-pandemic levels in the first half of 2021. Limited access to Covid-19 vaccines appears to be a major factor hindering recovery in these countries, the paper said.
The DHL Global Connectedness 2021 Index Update was co-written by Altman with Caroline R. Bastian, also a research scholar at the sane school. The study used 3.5 million data points to plot the health of globalization by measuring international flows of trade, capital, information and people.
