Globalisation is still just beginning

Secretary-General of the OECD

The Dark Ages, the Renaissance, the Industrial Revolution: these may be phrases from previous centuries, but they carry a multitude of images, lessons and historical memories that are still relevant today. I believe that the end of the last century and the beginning of this one will be characterised as the dawn of the “Age of Globalisation”.

Not that globalisation is a new phenomenon. International trade and investment, to take just these examples from the many areas affected by globalisation, have a long history. And markets have been international for centuries. According to economic historian Angus Maddison, some 3,500 Dutch merchant ships plied the seven seas in about 1670. The Dutch fleet dwarfed all others at the time. The leading capitalist country of the 19th century, Britain, which embarked on market integration, albeit largely within a colonial context, developed a policy of eliminating tariffs and imposed the policy on others. At the same time, it opened its economy to agricultural imports and watched its own agricultural sector wither away.

The mobility of capital in the latter part of the 19th century and the early part of the 20th century was enormous. The gross nominal value of capital invested abroad in 1914 by the UK, France and Germany was greater than in 1938. Capital mobility was quite extraordinary at the end of the so-called liberal era before the First World War. In 1914, the stock of foreign capital invested by western European countries in developing countries was 32% of their GDP. Although we have, in recent years, drawn close to this level of investment in developing countries, we have never exceeded it.

So, why are we so preoccupied and concerned with the notion of free trade and globalisation today, if it is merely an extension of what we have already experienced? The difference is that the extent of global integration between national markets is much greater than in the past–although in many respects, less than popular opinion would have us believe. Moreover, it is the fast pace of change which has put enormous pressure on societies to adapt and to create new skills.

Just how integrated is today’s global economy? One indicator is trade, now a major engine of growth in developed and developing countries alike. The volume of world merchandise traded today is about 22 times what it was in 1950. During the same period, the value of the world’s output has increased seven times over.

Perhaps the deepest integration of all has been the cross-border link-ups of enterprises. The share of OECD countries’ capital formation founded on foreign direct investment (FDI) rose to more than 10% in recent years, having stood at around 4% for decades.

An increasing proportion of this is in developing countries, including “south-south” investment, but OECD economies still account for the lion’s share. Furthemore, the activities of foreign affiliates of multinational enterprises are perhaps the most important drivers of global integration. The share of foreign affiliates in manufacturing turnover has risen in nearly all OECD countries over the past decade.

Efforts to attract foreign capital, especially in the form of foreign direct investment, are critical to growth everywhere. As with trade, foreign direct investment is a win-win deal for host and home countries alike. According to OECD data, for each extra dollar of outward foreign direct investment there are two dollars of additional exports which, in turn, translate into additional jobs in the home country.

So, are we finished integrating? Globalising? Have we reaped all the benefits? Certainly not yet. It is the high-income countries that have predominantly participated in expanding trade and investment. And their firms will continue to think and act globally–they will not go into reverse. The non-OECD world can become much more integrated into the global economy too. The non-OECD Asian countries have joined world markets more successfully than Latin American and much more so than most African countries. And capital markets are still far from being fully integrated.

While developing countries can participate more, so can advanced economies. A recent (and widely quoted) OECD study argues that if trade, FDI and domestic competition barriers were reduced on both sides of the Atlantic, the cumulative effect on earnings would mean workers in the OECD area could make an additional full year’s wage or more across their lifetime.

This should be seen as good news. But at the OECD, which has a key role in bringing about a globalisation from which all benefit, we know it is not sufficient to point to such incontrovertible evidence that liberalisation and market integration work. It is also necessary to address the worries of citizens, and even countries, who see themselves as losers, with their noses pressed against the window looking in at the winners!

Global integration has much farther to go, not least in ensuring its benefits accrue to all countries. It has much more to achieve in terms of economic growth and concomitant social welfare. This is the age of globalisation, but it is just the beginning.

©OECD Observer No 250, July 2005




Economic data

GDP growth: +0.6% Q2 2018 year-on-year
Consumer price inflation: 2.9% Sept 2018 annual
Trade: +2.7% exp, +3.0% imp, Q4 2017
Unemployment: 5.2% Sept 2018
Last update: 13 Nov 2018

E-Newsletter

Stay up-to-date with the latest news from the OECD by signing up for our e-newsletter :

Twitter feed

Suscribe now

<b>Subscribe now!</b>

To receive your exclusive paper editions delivered to you directly


Online edition
Previous editions

Don't miss

  • Globalisation will continue and get stronger, and how to harness it is the great challenge, says OECD Secretary-General Gurría on Bloomberg TV. Watch the interview here.
  • OECD Secretary-General Angel Gurría with UN Secretary-General António Guterres at the 73rd Session of the UN General Assembly, in New York City.
  • The new OECD Observer Crossword, with Myles Mellor. Try it online!
  • Watch the webcast of the final press conference of the OECD annual ministerial meeting 2018.
  • Listen to the "Robots are coming for our jobs" episode of The Guardian's "Chips with Everything podcast", in which The Guardian’s economics editor, Larry Elliott, and Jeremy Wyatt, a professor of robotics and artificial intelligence at the University of Birmingham, and Jordan Erica Webber, freelance journalist, discuss the findings of the new OECD report "Automation, skills use and training". Listen here.
  • Do we really know the difference between right and wrong? Alison Taylor of BSR and Susan Hawley of Corruption Watch tell us why it matters to play by the rules. Watch the recording of our Facebook live interview here.
  • Has public decision-making been hijacked by a privileged few? Watch the recording of our Facebook live interview with Stav Shaffir, MK (Zionist Union) Chair of the Knesset Committee on Transparency here.
  • Can a nudge help us make more ethical decisions? Watch the recording of our Facebook live interview with Saugatto Datta, managing director at ideas42 here.
  • The fight against tax evasion is gaining further momentum as Barbados, Côte d’Ivoire, Jamaica, Malaysia, Panama and Tunisia signed the BEPS Multilateral Convention on 24 January, bringing the total number of signatories to 78. The Convention strengthens existing tax treaties and reduces opportunities for tax avoidance by multinational enterprises.
  • Rousseau
  • Do you trust your government? The OECD’s How's life 2017 report finds that only 38% of people in OECD countries trust their government. How can we improve our old "Social contract?" Read more.
  • Globalisation’s many benefits have been unequally shared, and public policy has struggled to keep up with a rapidly-shifting world. The OECD is working alongside governments and international organisations to help improve and harness the gains while tackling the root causes of inequality, and ensuring a level playing field globally. Please watch.
  • Checking out the job situation with the OECD scoreboard of labour market performances: do you want to know how your country compares with neighbours and competitors on income levels or employment?
  • Trade is an important point of focus in today’s international economy. This video presents facts and statistics from OECD’s most recent publications on this topic.
  • The OECD Gender Initiative examines existing barriers to gender equality in education, employment, and entrepreneurship. The gender portal monitors the progress made by governments to promote gender equality in both OECD and non-OECD countries and provides good practices based on analytical tools and reliable data.
  • Interested in a career in Paris at the OECD? The OECD is a major international organisation, with a mission to build better policies for better lives. With our hub based in one of the world's global cities and offices across continents, find out more at www.oecd.org/careers .
  • Visit the OECD Gender Data Portal. Selected indicators shedding light on gender inequalities in education, employment and entrepreneurship.

Most Popular Articles

OECD Insights Blog

NOTE: All signed articles in the OECD Observer express the opinions of the authors
and do not necessarily represent the official views of OECD member countries.

All rights reserved. OECD 2018