Will the attacks of September 11 bring an end to globalisation?
Stephen Roach, the chief economist of Morgan Stanley, recently argued in this newspaper: "The forces of globalisation, which once seemed unstoppable, are facing new resistance." Fears over security might raise the costs of international trade and persuade more businesses to stay at home.
However, a look at the statistics suggests it would take a truly seismic shock to cancel out the forces that made the world economy increasingly integrated during the second half of the 20th century.
In economic terms, the sometimes fuzzy concept of globalisation can be pinned down in two specific figures: international trade and capital flows.
Both have been rising strongly since the second world war, and took off spectacularly during the 1990s. This year, those trends have been checked.
The United Nations said last week it thought global trade volumes would not rise at all this year. The World Trade Organisation's estimate, published next week, might be slightly high er but will still represent an abrupt slowdown from the growth of 12 per cent recorded last year. This year is likely to be the first year since 1985 that world trade has grown by less than the world economy. Investment flows seem to be similarly drying up. The United Nations Conference on Trade and Development has forecast that total world foreign direct investment this year will be about $760bn, down from $1,271bn last year - the first drop since 1991 and a bigger fall in FDI than its total value in 1997.
These apparently convincing examples of the decline of globalisation are undermined, however, by the fact that the trends pre-date the attacks on the US.
World trade is inherently volatile. Its cycle is always more pronounced than that of the world economy, and there is no need to invoke the increased cost of security on international flights and shipments to explain this year's slowdown.
The most important factor seems to have been the collapse in the markets for electronic goods such as semiconductors. Electronics have made up a large proportion of many Asian economies' exports - two-thirds of Malaysia's, for example.
This year's downturn in FDI has, similarly, been a result mainly of the bursting of the technology bubble. The recent surge in flows was driven by the wave of vast cross-border mergers and acquisitions, fuelled by inflated share prices. As values in the technology sector have fallen, the M&A boom has subsided.
None of this is to say that the September 11 attacks and the war against terrorism that followed will have no effect. Trade in services such as travel and tourism is likely to fall, at least for a while, and international investors have become more nervous about many emerging markets.
But the economic logic that has driven globalisation remains. It makes sense for countries to specialise in activities in which they have a comparative advantage. It is this that has kept world trade growing on a faster trend than world output though all the turbulence of wars and political upheavals in the postwar world.
The semiconductor market and M&A activity are quintessential cyclical activities. They have been going down, and there is every reason to expect they will go up again.
Writing globalisation's obituary would be premature.
===== Kevin Dean Buffalo, NY ICQ: 8616001 http://www.yaysoft.com
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