How can developing countries benefit from globalization

»Emerging and developing countries benefit little from globalization«

The study “Globalization Report 2014: Who will benefit most from globalization?” Comprises two parts. The first part is devoted to the question of the extent to which different countries have benefited from globalization in the past and to what extent this may also be the case in the future. With the Prognos free trade and investment index, the second part offers a differentiated measure of the attractiveness of foreign markets for German companies.

Methodologically, the ex-post analysis of the first part of the report is based on scenario calculations for 42 countries in the period from 1990 to 2011. In one scenario, it is assumed that globalization would not have progressed further from the beginning of the study period. The comparison of the scenario and the actually observed economic development then allows globalization-induced added value gains to be quantified and compared across countries.

The main results of the ex-post analysis based on the scenario calculations can be summarized as follows:

• If one adds up the differences in gross domestic product per inhabitant between the scenario and the historically observed development over the entire analysis period, Finland recorded the highest globalization gains of all the countries examined, with an average of 1,500 euros per inhabitant per year. In this perspective, Germany ranks in the first third of the ranking together with many smaller European countries. The large emerging countries, on the other hand, only occupy places at the bottom of the ranking.

• The weak positions of the emerging countries - especially China - are due, among other things, to their low economic output per inhabitant in the starting year. The annual average globalization-induced income gain per inhabitant in relation to the gross domestic product per inhabitant in 1990 was around 18.5 percent for China, just under 6 percent for Germany and just under 2 percent for the United States.

The projections of the first part of the report are based on two additional scenario calculations using the macroeconomic model VIEW. For the "accelerated globalization" scenario, it is assumed that globalization will advance at one and a half times faster than in the past. In the “divergent globalization” scenario, economic development is simulated with an assumed stagnation of the degree of networking between Greece, Portugal and Spain and the rest of the world.

The main results of the projections can be summarized as follows:

• The “Accelerated globalization” scenario shows that especially Eastern European countries and the large emerging countries could expect growth rates to increase by around 0.5 percentage points by 2020 if the pace of globalization were to increase by 50 percent. For large economies with high per capita incomes, on the other hand, a significantly lower growth rate would be expected.

• In the “Divergent globalization” scenario, the growth losses for the countries directly affected by the modeled stagnation of globalization, Greece, Portugal and Spain, are expected to be the greatest. By 2020, these countries would increase up to one percentage point p. a. Lose economic growth. Most indirectly affected would be economies like Italy, which are important trading partners of the countries directly affected.

The Prognos Free Trade and Investment Index - the subject of the second part of the study - bundles a broad spectrum of economic, institutional and socio-political indicators into a comprehensive measure of the attractiveness of foreign markets for German companies. While the ranking list ensures clarity, the large number of countries examined and the high level of detail in the indicators make it possible to identify foreign markets, the attractiveness of which for German players is still often underestimated. The main results of the analysis of the Prognos free trade and investment index can be summarized as follows:

• The Prognos free trade and investment index shows that, despite the current crises in the European Union and especially in the countries of the euro zone, the most attractive framework conditions for German activities abroad continue to exist in European countries.

• In addition, the United States and some Asian countries in particular offer attractive foreign markets for German companies.

You can find the entire study here.