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Digital Globalization and the Developing World

Globalization is entering a new era, defined not only by cross-border flows of goods and capital, but also, and increasingly, by flows of data and information. Will this shift disproportionately favor the advanced economies, whose industries are at the frontier in employing digital technologies in their products and operations?

BERKELEY – Globalization is entering a new era, defined not only by cross-border flows of goods and capital, but also, and increasingly, by flows of data and information. This shift would seem to favor the advanced economies, whose industries are at the frontier in employing digital technologies in their products and operations. Will developing countries be left behind?

For decades, vying for the world’s low-cost manufacturing business seemed to be the most promising way for low-income countries to climb the development ladder. Global trade in goods rose from 13.8% of world GDP in 1985 ($2 trillion) to 26.6% of GDP ($16 trillion) in 2007. Propelled by demand and outsourcing from advanced economies, emerging markets won a growing share of the soaring trade in goods; by 2014, they accounted for more than half of global trade flows.

Since the Great Recession, however, growth in global merchandise trade has stalled, mainly owing to anemic demand in the world’s major economies and plummeting commodity prices. But deeper structural changes are also playing a role. Many companies are simplifying and shortening their supply chains. For a range of goods, automation means that production location and outsourcing decisions no longer depend primarily on labor costs. Quality of talent, infrastructure, energy costs, and speed to market are assuming greater weight in such decisions. In the near future, 3D printing could further reduce the need to ship goods across long distances.

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