Every two years, our Globalization Report examines how much individual countries have benefited from the progressing globalization since 1990. Twenty-two of the countries considered in the “Globalization Report 2020” are also assessed by the Bertelsmann Stiftung’s Transformation Index (BTI).

The BTI analyzes and evaluates whether and how developing countries and transitional economies are steering social change toward democracy and market economies. This post describes how the 22 BTI countries perform in our “Globalization Report 2020”.

Development of globalization between 1990 and 2018

Figure 1 shows that – except for some Eastern European countries – most BTI countries included in the Globalization Report show a low degree of international integration. This means that these countries still have considerable potential for increasing their economic, social, and political globalization.

chart globalization

A closer look at the change in the international integration of the 45 countries under consideration compared to the rest of the world between 1990 and 2018 shows that many BTI countries have, however, been able to achieve above-average growth in the Globalization Index (see Fig. 2). In Eastern Europe, there are two central reasons for this: the fall of the Iron Curtain and the EU expansion to the East.

chart globalization

Absolute globalization-induced GDP gains

Globalization-related average annual income gains in real GDP per capita, however, vary considerably among the 45 countries (Fig. 3): The largest average income gains per capita and per year are in Japan (around 1,790 euros), Ireland (about 1,610 euros) and Switzerland (approximately 1,580 euros). The large emerging markets are clustered at the lower end of the scale when measuring globalization gains like this.

chart globalization

As mentioned in a previous post, there are three main reasons for these differences: the starting level of GDP per capita, the extent to which globalization has changed over the period under consideration, and the timing of the Globalization Index gains.

Relative globalization-induced GDP gains

However, the fact that the absolute globalization-induced GDP growth of most BTI countries is relatively low by international standards does not mean that globalization is irrelevant in these countries. Quite the opposite.

If GDP gains expressed in euros are set in relation to the starting levels of the respective real GDP per capita, the ranking of the countries with the highest growth rates changes drastically (Fig. 4). This can be illustrated by using the example of China:

  • China’s cumulative globalization-induced real GDP gains per capita between 1990 and 2018 amount to around EUR 2,660. China, therefore, reaches only 42nd place when compared to all 45 countries.
  • However, if the same amount compared to China’s real GDP per capita in 1990 – which was 430 euros – this cumulative monetary benefit from globalization represents nearly 620 percent of the 1990 GDP level. This is by far the highest value of all 45 countries. South Korea follows in second place, with around 370 percent.

chart globalization

Nine BTI countries are among the top ten countries in Figure 4. 16 out of 22 countries are ranked in the upper half of this ranking, illustrating the importance of advancing globalization for these countries.

Implications for economic policy

Fair distribution of the increased global material wealth produced by globalization between countries is essential. Like earlier studies, the “Globalization Report 2020” has shown that developed industrialized nations have benefited the most from globalization so far in absolute terms of real GDP per capita.

To ensure that the promotion of international trade allows emerging markets and developing countries a greater share of the economic benefits of the international division of labor, three measures, in particular, seem to be suitable for this purpose:

  1. It would be helpful if industrialized countries opened their markets to processed products from developing countries without demanding the same in return (since developing countries are generally unable to enter into competition with industrialized countries on equal terms).
  2. Industrialized countries should reduce, or even discontinue, their subsidies for agricultural products to eliminate the distortion of competition towards developing countries depending heavily on agriculture.
  3. A fairer distribution of trade profits could also be achieved by expanding the financial support of rich industrialized countries to less-developed economies to enable these countries to afford the required infrastructure, education, and production facilities.

Such steps taken by highly developed countries should not, however, lead to the governments of emerging markets and developing countries being relieved of their obligations. Foreign direct investment is an essential prerequisite for improving the integration of these economies, as it has a vital role in financing investments to foster improved economic performances.

However, foreign investors need legal certainty in the respective country targeted for investment. In this respect, market-economy structures that enable free and fair competition of inclusive economic development must be distinguished from state-led, market-distorting, or patronage-based structures that merely adopt certain aspects of the capitalist economy to realize efficiency gains in the service of a closed political system.

Note: This blog post is based on the publication „Globalization Report 2020 – How do developing countries and emerging markets perform?“.