The free flow of ideas, people, goods, services, and capital across
national borders leads to greater economic integration. But globalization,
the trend toward these things moving ever more freely between nations, has
seen ebbs and flows over the decades.
Those trends are coming into sharper focus this year as policymakers work
to understand and address the prospect of
geoeconomic fragmentation, which threatens to undo the integration that has improved the lives and
livelihoods of billions of people.
Looking back over a century and a half of data, the main phases of
globalization are clearly visible using the trade openness metric—the sum
of exports and imports of all economies relative to global gross domestic
product.
As the Chart of the Week shows, globalization plateaued in the decade and a
half since the global financial crisis. This latest era is often referred
to as “slowbalization.”
Each of the chart’s five main periods was characterized by different
configurations of economic and financial powers, and different rules and
mechanisms for economic and financial ties between countries, as we
recently highlighted in a
recent IMF staff note
that discussed the impact of trade fragmentation as well as technological
decoupling.
- The Industrialization era was a period when global
trade—dominated by Argentina, Australia, Canada, Europe, and the United
States—was facilitated by the gold standard. It was largely driven by
transportation advances that lowered trade costs and boosted trade volumes.
- The Interwar era saw a dramatic reversal of
globalization due to international conflicts and the rise of protectionism.
Despite the League of Nations push for multilateral cooperation, trade
became regionalized amid trade barriers and the breakdown of the gold
standard into currency blocs.
- The Bretton Woods era saw the United
States emerge as the dominant economic power with the dollar, then pegged to
gold, underpinning a system with other exchange rates pegged to the greenback.
The post-war recovery and trade liberalization spurred rapid expansion in
Europe, Japan, and developing economies, and many countries relaxed capital
controls. But expansionary US fiscal and monetary policy driven by social
and military spending ultimately made the system unsustainable. The United
States ended dollar-gold convertibility in the early 1970s, and many countries
switched to floating exchange rates.
- The Liberalization era saw gradual removal of trade
barriers in China and other large emerging market economies and
unprecedented international economic cooperation, including the integration
of the former Soviet bloc. Liberalization accounted for most of the
increase in trade, and the World Trade Organization, established in 1995,
became a new multilateral overseer of trade agreements, negotiations and
dispute settlement. Cross-border capital flows surged, increasing the
complexity and interconnectedness of the global financial system.
- The “Slowbalization” that followed the global financial crisis has been characterized by a
prolonged slowdown in the pace of trade reform, and weakening political
support for open trade amid rising geopolitical tensions.
