World more integrated than ever in 2002 despite economic turmoil

Despite a sluggish world economy, the annual A.T

Despite a sluggish world economy, the annual A.T. Kearney/Foreign Policy Globalisation Index reveals that Internet growth and increased travel deepened global links. And Ireland has again topped the rankings

The last year's headlines have offered a grim commentary on the prospects for global integration. The World Trade Organisation (WTO) meeting in Cancún, Mexico, collapsed when developing countries revolted over agricultural subsidies. Trade ministers scaled back plans for the Free Trade Area of the Americas (FTAA). The US and the EU traded diplomatic blows over free trade and the war on terrorism.

Within the EU, the Growth and Stability Pact collapsed, and political integration sputtered as leaders failed to reach consensus on a draft constitution.

And the UN, perhaps the most visible symbol of multilateral co-operation, appeared immobilised as the rancorous debate over Iraq unfolded.

READ MORE

But we've heard it all before. In the months following the September 11th, 2001, attacks, pundits were predicting the end of globalisation as we knew it. Porous borders that made possible the unprecedented movement of money, goods, people and ideas were to be encircled by checkpoints, bringing trade and travel to a halt.

Some even predicted a global economic and political unravelling similar to the events preceding the first World War.

Yet this year's edition of the A.T. Kearney/Foreign Policy Globalisation Index shows that globalisation endured in 2002.

To be sure, it was a difficult year for global economic linkages as a downturn in foreign direct investment (FDI) and a sharp drop in portfolio capital flows led to the lowest level of economic integration since 1998.

But globalisation involves far more. That's why the index uses several indicators spanning trade, finance, political engagement, information technology (IT), and personal contact to determine the rankings of 62 countries.

We found that non-economic drivers of global integration, from travel to telephone traffic, remained remarkably resilient in 2002, while access to the Internet worldwide continued to surge.

These variables helped compensate for the weakening of international economic ties, and deepened global linkages overall. Despite all its travails, the world was more integrated at the end of 2002 than ever been before.

Last year's index depicted a global economy stuck in reverse, with most key indicators of integration losing ground amid a world economic slowdown exacerbated by terrorist attacks.

Measured as a whole, the economic links that bind countries together grew even weaker in 2002, reducing the gains from the late 1990s' economic boom and - relative to the size of the global economy - settling below levels recorded in 1998.

The continued fall-off in global capital flows, largely from the world's most advanced economies, was one of the chief reasons. Already down 40 per cent in 2001, FDI fell another 21 per cent in 2002 to $651 billion, the lowest in five years.

But countries worked harder than ever to attract foreign investors: 70 states adopted a record 248 investment-friendly legal and regulatory changes, up from 208 such measures the year before.

Global flows of portfolio capital also dropped significantly when stock market losses in countries such as the US, Germany, and Brazil erased wealth, and Argentina's slow-motion meltdown made investors more risk-averse. As funds dried up, the US stock market saw its worst three-year period in six decades, and industrial markets were down by about 20 per cent in 2002.

Throughout the year, emerging markets issued fewer equities than at any time since 1995, with China alone accounting for one-third of all equity placements outside North America, Europe, and Japan.

Yet in 2002, global economic growth finally began to recover after the shocks of the previous year. While not the roaring 1990s (when global average growth was 4.8 per cent per year), overall real growth inched up to 1.9 per cent from 1.3 per cent the year before.

Developing economies got a strong boost, with growth rising from 2.4 per cent to 3.3 per cent.

Overall, global merchandise trade rose a modest 2.5 per cent, with strong growth in central and eastern Europe and emerging Asian countries.

Global political connections showed little change in 2002, when international consensus across a broad range of high-profile issues proved elusive.

Rising tensions over Iraq introduced new international fault lines as President Bush's strong push for an invasion exacerbated EU-US relationships already strained by steel tariffs and farm subsidies.

At the same time, the US, Chile, China and Israel rejected the treaty creating the International Criminal Court (ICC), even as 38 new signatories joined to put the treaty into force.

But nations managed to find common ground on a broad range of anti-terrorism measures, such as sharing banking data to combat money laundering.

And the industrialised countries addressed global poverty at the International Conference on Financing for Development in Monterrey, Mexico. Participating nations pledged to boost aid to the world's poorest countries by a third over the next five years, and raised actual assistance by 4.9 per cent in 2002 alone.

China completed its first full year of membership in the World Trade Organisation, and 14 new bilateral or regional free-trade agreements were signed.

Governments also continued dedicating resources to global peacekeeping efforts. Although financial and personnel contributions to UN Security Council missions dipped slightly in 2002, the total was still four times higher than in 1998. Overall, 89 countries contributed more than 39,000 personnel to 15 missions. Developing countries led the pack: Bangladesh, Pakistan and Nigeria were among the top contributors of personnel to UN missions.

Internet connections were among the most powerful accelerators of global integration. Internet use and access around the world expanded rapidly. More than 130 million new users came online in 2002, bringing the total to more than 620 million, representing 9.9 per cent of the world population, up from 8.1 per cent the year before.

By at least one estimate, the World Wide Web now contains a volume of information that is 17 times larger than the print collections of the US Library of Congress, with new information equivalent to the holdings of an average academic research library being added every day.

Growth in developing countries was the key force behind the expansion. While some developed markets neared saturation, developing countries added Internet users more than three times faster.

Declining costs of connectivity and personal computers, coupled with high population growth and an increasing proportion of savvy young people, helped fuel rapid technology adoption and consumer demand for Internet access - especially in the world's largest countries.

In China, the number of Internet users rose 75 per cent in 2002; in Brazil 78.5 per cent; and in India 136 per cent. The Middle East remained among the world's least connected areas, but saw user numbers jump 116 per cent.

Yet, if the digital divide was narrowing, the infrastructure divide showed few signs of diminishing. In 2002, the world's total number of Internet hosts (computers permanently tied to the Internet) inched up at less than one-tenth. Although 3.3 million new hosts were added, developing countries still had less than 10 per cent of the total.

International telephone traffic continued to grow, up 9 billion minutes to a total of 135 billion minutes in 2002 - more than 21 minutes per person on the planet.

Developing countries such as Botswana, Hungary, Indonesia, and South Africa became better connected than ever before as the rapid buildup of wireless networks allowed customers to leapfrog over poorly developed fixed-line infrastructure.

In 2002, for the first time, the number of mobile phones per capita worldwide exceeded that of main telephone lines, with 18.98 mobile subscribers to 17.95 fixed-line subscribers per 100 inhabitants.

And, whereas in 2001 travel and tourism suffered the first global contraction since the second World War, 2002 saw a rebound of international travel that beat the grim predictions offered by industry leaders. Nearly 22 million more people travelled across international borders in 2002 than in 2001.

Asia showed impressive growth - China attracted 36.8 million visitors and ranked among the world's five most popular tourist destinations.

Support networks of family and friends living and working abroad continued to provide a lifeline for developing nations. Even as non-resident guest workers came under increased pressure in host economies such as Malaysia (which deported 124,000 foreign residents in 2002), migrants worldwide sent nearly $80 billion home to developing countries - almost as significant a source of income as the $100 billion those nations received through FDI.