Economics of Digital Globalization and Information Data Flows
Please see this link below for changes in global data flows between 2005 and 2014.
Source: McKinsey & Company.
People and Businesses are using internet and other data and communications technologies in variety of ways. Some are listed below.
- Social networking
- Digital media
- Online eduction
- Online entertainment
- Business Communications
- Online Capital
- Online Organizing
- Online Markets (Amazon, Ebay, Alibaba)
Governments and Trade organizations are catching up to these trends. Several research reports have been published recently. Trade agreements are being negotiated which include means to reduce barriers to digital trade.
From DIGITAL GLOBALIZATION: THE NEW ERA OF GLOBAL FLOWS
Conventional wisdom says that globalization has stalled. But although the global goods trade has flattened and cross-border capital flows have declined sharply since 2008, globalization is not heading into reverse. Rather, it is entering a new phase defined by soaring flows of data and information.
Remarkably, digital flows—which were practically nonexistent just 15 years ago—now exert a larger impact on GDP growth than the centuries-old trade in goods, according to a new McKinsey Global Institute (MGI) report, Digital globalization: The new era of global flows. And although this shift makes it possible for companies to reach international markets with less capital-intensive business models, it poses new risks and policy challenges as well.
The world is more connected than ever, but the nature of its connections has changed in a fundamental way. The amount of cross-border bandwidth that is used has grown 45 times larger since 2005. It is projected to increase by an additional nine times over the next five years as flows of information, searches, communication, video, transactions, and intracompany traffic continue to surge. In addition to transmitting valuable streams of information and ideas in their own right, data flows enable the movement of goods, services, finance, and people. Virtually every type of cross-border transaction now has a digital component.
Trade was once largely confined to advanced economies and their large multinational companies. Today, a more digital form of globalization has opened the door to developing countries, to small companies and start-ups, and to billions of individuals. Tens of millions of small and midsize enterprises worldwide have turned themselves into exporters by joining e-commerce marketplaces such as Alibaba, Amazon, eBay, Flipkart, and Rakuten. Approximately 12 percent of the global goods trade is conducted via international e-commerce. Even the smallest enterprises can be born global: 86 percent of tech-based start-ups surveyed by MGI report some type of cross-border activity. Today, even the smallest firms can compete with the largest multinationals.
Individuals are using global digital platforms to learn, find work, showcase their talent, and build personal networks. Some 900 million people have international connections on social media, and 360 million take part in cross-border e-commerce. Digital platforms for both traditional employment and freelance assignments are beginning to create a more global labor market.
In this increasingly digital era of globalization, large companies can manage their international operations in a leaner, more efficient ways. Using digital platforms and tools, they can sell in fast-growing markets while keeping virtual teams connected in real time. This is a moment for companies to rethink their organizational structures, products, assets, and competitors.
Global flows of all types support growth by raising productivity, and data flows are amplifying this effect by broadening participation and creating more efficient markets. MGI’s analysis finds that over a decade, all types of flows acting together have raised world GDP by 10.1 percent over what would have resulted in a world without any cross-border flows. This value amounted to some $7.8 trillion in 2014 alone, and data flows account for $2.8 trillion of this impact. Both inflows and outflows matter for growth, as they expose economies to ideas, research, technologies, talent, and best practices from around the world.
Although there is substantial value at stake, not all countries are making the most of this potential. The latest MGI Connectedness Index—which ranks 139 countries on inflows and outflows of goods, services, finance, people, and data—finds large gaps between a handful of leading countries and the rest of the world. Singapore tops the latest rankings, followed by the Netherlands, the United States, and Germany. China has grown more connected, reaching number seven, but advanced economies in general remain more connected than developing countries. In fact, each type of flow is concentrated among a small set of highly connected countries.
Lagging countries are closing the gaps with the leaders at a very slow pace, and their limited participation has had a real cost to the world economy. If the rest of the world had increased its participation in global flows at the same rate as the top quartile over the past decade, world GDP would be $10 trillion, or 13 percent, higher today. For countries that have been slow to participate, the opportunities for catch-up growth are too substantial to ignore.
From Why globalization isn’t it in retreat, it’s gone digital
A hand is silhouetted in front of a computer screen in this picture illustration taken in Berlin May 21, 2013. The Financial Times’ website and Twitter feeds were hacked May 17, 2013, renewing questions about whether the popular social media service has done enough to tighten security as cyber-attacks on the news media intensify. The attack is the latest in which hackers commandeered the Twitter account of a prominent news organization to push their agenda. Twitter’s 200 million users worldwide send out more than 400 million tweets a day, making it a potent distributor of news.
Around the world, countries are rethinking the terms of engagement in global trade. This is not all bad; in fact, acknowledgement of globalization’s disruptive effects on millions of advanced-economy workers is long overdue. But new trade policies must be based on a clear-eyed understanding of how globalization is evolving, not on a backward-looking vision based on the last 30 years.
Globalization has done the world a lot of good. Research from the McKinsey Global Institute shows that, thanks to global flows of goods, services, finance, data, and people, world GDP is more than 10% higher – some $7.8 trillion in 2014 alone – than it would have been had economies remained closed.
More interconnected countries capture the largest share of this added value. For example, the United States, which ranks third among 195 countries on MGI’s Connectedness Index, has done rather well. Emerging-market economies have also reaped major gains, using export-oriented industrialization as a springboard for rapid growth.
Yet, even as globalization has narrowed inequality among countries, it has aggravated income inequality within them. From 1998 to 2008, the middle class in advanced economies experienced no income growth, while incomes soared by nearly 70% for those at the top of the global income distribution. Top earners in the US, accounting for half of the global top 1%, reaped a significant share of globalization’s benefits.
To be sure, this isn’t all, or even mostly, a result of globalization. The main culprit is technological change that automates routine manual and cognitive tasks, while increasing demand (and wages) for highly skilled workers. But import competition and labor arbitrage from emerging economies have also played a role. Perhaps more important, they have proved more salient targets of voters’ fear and resentment.
Indeed, in the industries and regions hit hardest by import competition, years of simmering discontent have now boiled over, fueling support for populists promising to roll back globalization. But, as the advanced economies reformulate trade policy, it is critical that they understand that globalization was already undergoing a major structural transformation.
Since the global financial crisis, cross-border capital flows have plummeted, with banks pulling back in response to new regulation. From 1990 to 2007, global trade grew twice as fast as global GDP; since 2010, GDP growth has outpaced that of trade.
Both cyclical and secular forces are behind the trade slowdown. Investment has been anemic for years. China’s growth has slowed – a secular trend that is unlikely to be reversed. And the expansion of global supply chains seems to have reached the frontier of efficiency. In short, slower global trade is likely to be the new normal.
None of this is to say that globalization is in retreat. Rather, it is becoming a more digital phenomenon. Just 15 years ago, cross-border digital flows were almost non-existent; today, they have a larger impact on global economic growth than traditional flows of traded goods.
The volume of cross-border data flows has soared 45-fold since 2005, and is expected to grow another nine-fold over the next five years. Users worldwide can stream Beyoncé’s latest single immediately upon its release. A manufacturer in South Carolina can use the e-commerce platform Alibaba to buy components from a Chinese supplier. A young girl in Kenya can learn math through Khan Academy. Eighty percent of students taking Coursera’s online courses live outside the US.
This new form of digital globalization is more knowledge-intensive than capital- or labor-intensive. It requires broadband connections, rather than shipping lanes. It reduces barriers to entry, strengthens competition, and changes the rules governing how business is done.
Consider export activities, which once seemed out of reach for small businesses lacking the resources to scout out international prospects or navigate cross-border paperwork. Now, digital platforms like Alibaba and Amazon enable even small-scale entrepreneurs to connect directly with customers and suppliers around the world, transforming themselves into “micro multinationals.” Facebook estimates that 50 million small businesses are on its platform, up from 25 million in 2013; 30% of these companies’ Facebook fans, on average, are from other countries.
While digital technologies open the door for small companies and individuals to participate in the global economy, there is no guarantee that sufficient numbers will walk through it. That will require policies that help them take advantage of new global market opportunities.
The US has pulled out of the Trans-Pacific Partnership (TPP) deal, but many of the issues it addressed still require global rules. Data localization requirements and protectionism are on the rise, and data privacy and cyber-security are pressing concerns. In the absence of the TPP, it will be critical to find some other vehicle for establishing new principles for digital trade in the twenty-first century, with a greater emphasis on intellectual property protection, cross-border data flows, and trade in services.
At the same time, advanced economies must help workers acquire the skills needed to fill high-quality jobs in the digital economy. Lifelong learning cannot just be a slogan; it must become a reality. Mid-career retraining must be made available not only to those who have lost their jobs to foreign competition, but also to those facing disruption from the continuing march of automation. Training programs should be able to impart new skills in a matter of months, not years, and they should be complemented by programs that support workers’ incomes during retraining, and that help them relocate for more productive work.
Most of the advanced economies, including the US, have not adequately responded to the needs of the communities and individuals left behind by globalization. Addressing these needs is now of paramount importance. Effective responses will require policies that help people adapt to the present and take advantage of future opportunities in the next phase of digital globalization.
From The ascendancy of international data flows
We compiled data for more than 150 countries for 20 years regarding six types of cross-border flows: physical flows of goods and services, FDI flows, financial flows, labour migration flows, and data flows measured in bits. As flows are most likely correlated to each other, we first resorted to a principal component analysis of flows and found that the largest factor accounted for up to 60% of the variance among flows, with all flows being positively correlated to the factor. Among the factors, this primary factor was also the only one to be statistically (and, as expected, positively) associated with a country’s economic growth.
Estimating a pooled cross-section, time series co-integration model of country GDP growth, we find that, together, global flows of goods, services, finance, people, and data have raised world GDP by at least 10% in the past decade, adding US$8 trillion of GDP by 2015. More crucially, and in part driven by the material growth in cross-border data bits internationally, the value of data flows has nearly matched the value of global trade in physical goods. By 2014, cross-border data flows accounted for $2.3 trillion of this value, or roughly 3.5% of total world GDP.
This estimate is only a first benchmark which will require further verification. But it underscores the importance of global data flows for economies at large. It also highlights new elements of consideration for economists, for policymakers, and for business. Given the significant contribution to GDP, governments must address pending issues such as free flows of data, cybersecurity, and privacy. They must also harness flows better through international standardisation of single payment systems, standardisation of internet of things protocols, coordination of tax issues, and integrated logistics. On the business side, the world’s biggest digital platforms – from e-commerce marketplaces to social media network – have become global in a matter of a few years, but though their concentration may be a concern, they have also amassed hundreds of millions of companies that can benefit from improved export opportunities and achieve major productivity gains.
Furthermore, the international flow of information facilitated by these digital technologies is a powerful driver of new performance for global firms, for example in optimising distributed R&D and innovation. Ultimately, everyone will need to go with the flow.
- GATS (General Agreement on Trade in Services)
- ICT (information and communications technology)
- IPR (intellectual property rights)
- ITA (International Technology Agreement)
- NTIA (National Telecommunications and Information Administration)
- OECD (Organization for Economic Co-operation and Development)
- TPP (Trans-Pacific Partnership)
- TTIP (Transatlantic Trade and Investment Partnership)
- TiSA (Trade in Services Agreement)
- USITC (United States International Trade Commission)
- USTR (United States Trade Representative)
- WTO (World Trade Organization)
- Digital Trade
Key Sources of Research:
DIGITAL GLOBALIZATION: THE NEW ERA OF GLOBAL FLOWS
Global flows in a digital age
How trade, finance, people, and data connect the world economy
By James Manyika, Jacques Bughin, Susan Lund, Olivia Nottebohm, David Poulter, Sebastian Jauch, and Sree Ramaswamy
Harnessing the power of shifting global flows
By Jacques Bughin, Susan Lund, and James Manyika
Internet matters: The Net’s sweeping impact on growth, jobs, and prosperity
By Matthieu Pélissié du Rausas, James Manyika, Eric Hazan, Jacques Bughin, Michael Chui, Rémi Said
Online and Upcoming: Internet’s Impact on India
Online and upcoming: The Internet’s impact on aspiring countries
Olivia Nottebohm James Manyika Jacques Bughin Michael Chui Abdur-Rahim Syed
The Importance of The Internet and Transatlantic data flows for U.S. and EU Trade and Investment
Joshua p. meltzer
ASEF OUTLOOK REPORT 2016/2017
Asia Europe Foundation
Mega-trends 2015 Making sense of a world in motion
Cross-Border Data Flows, Digital Innovation, and Economic Growth
Robert Pepper John Garrity Connie LaSalle
Business Without Borders: The Importance of Cross-Border Data Transfers to Global Prosperity
US Chamber of Commerce
The Digital Revolution in Banking
Group of Thirty
Digital Trade and U.S. Trade Policy
Rachel F. Fefer
Shayerah Ilias Akhtar
Wayne M. Morrison
US Congress Research
January 13, 2017
Measuring the Value of Cross-Border Data Flows
US Deptt of Commerce
Transatlantic Digital Economy and Data Protection: State-of-Play and Future Implications for the EU’s External Policies
Why globalization isn’t it in retreat, it’s gone digital
The ascendancy of international data flows
Jacques Bughin, Susan Lund
09 January 2017
The Digital Trade Imbalance and Its Implications for Internet Governance
Susan Ariel Aaronson
Solutions to the digital trade imbalance
Susan Ariel Aaronson
07 March 2016
Digital Trade in the U.S. and Global Economies, Part 2
Digital Trade in the U.S. and Global Economies, Part 1
Enter the Data Economy : EU Policies for a Thriving Data Ecosystem
Data, Trade and Growth
BY DR. MICHAEL MANDEL
Bridging the Data Gap How Digital Innovation Can Drive Growth and Create Jobs
By Paul Hofheinz and Michael Mandel
Measuring the Economic Value of Cross-Border Data Flows
April 22, 2016
Jessica R. Nicholson
Trends in Digitally-Enabled Trade in Services
by Maria Borga and Jennifer Koncz-Bruner
Digital Economy and Cross-Border Trade: The Value of Digitally-Deliverable Services
Jessica R. Nicholson and Ryan Noonan
U.S. Department of Commerce / Economics and Statistics Administration
World Development Report 2016: Digital Dividends
World Bank 2016
Cross-Border Data Flows Enable Growth in All Industries
BY DANIEL CASTRO AND ALAN MCQUINN
| FEBRUARY 2015
Addressing Barriers to Digital Trade
Usman Ahmed and Grant Aldonas
The Internet Economy in the G-20
The $4.2 Trillion Growth Opportunity