regionalization and globalization essay

Regionalization vs globalization: what is the future direction of trade?

Ever Given container ship is seen in Suez Canal in this satellite image taken by Satellogics New Sat-16 on March 25, 2021.

Analysts and commentators predict a wave of deglobalization in the wake of disasters like the pandemic and the Suez Canal blockage. Image: REUTERS.

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Destabilizing world events, including COVID-19 and the Suez Canal blockage, have exposed international trade's vulnerabilities.
Several prominent analysts and commentators are predicting trade will become less globalized and more regional.
We examined merchandise trade data between 1815-2021 to test this hypothesis.

International trade is a key source of economic prosperity. That is why policymakers, economists and business leaders alike are concerned by recent developments. The COVID-19 crisis, as well as the Suez Canal blockage, add to a series of troubling events: rising protectionism and the China-US trade war to name just two. These developments have contributed to new discussions about the shortening of supply chains and building up resilience.

Some analysts and commentators see a wave of deglobalization forging ahead. The Economist predicted on 24 January 2019: “The new world will work differently. Slowbalisation will lead to deeper links within regional blocs. Supply chains in North America, Europe and Asia are sourcing more from closer to home. In Asia and Europe most trade is already intra-regional, and the share has risen since 2011.” And in the Financial Times, Martin Wolf wrote on 10 December 2020: “The plausible future is not that international exchange is going to die. But it is likely to become more regional and more virtual.”

Are regionalization predictions backed up by the data?

Based on a careful analysis of merchandise trade data, we examined the extent to which data supports such projections. To do so, we established three indicators that reveal regionalization: the share of global trade between nations on the same continent; the share of global trade between nations featuring a common border; and the average trade-weighted geographic distance of global trade. All three signal a trend towards regionalization if they increased recently.

1. Trade data 1815-2014

First, we considered historical trade data provided by Michel Fouquin and Jules Hugot, which spans back to the year 1825 (Figure 1: Tests for Regionalization in Historical Trade Data, 1815-2014). We observed that about a fifth of global trade occurs between neighbouring countries, roughly 60% among countries on the same continent. And the trade-weighted average geographic distance in global trade is about 5,000km but fluctuates over time – with declines during major disruptions. For all three indicators, there is no evidence of regionalization in the years prior to 2014.

2. Trade data 1950-2019

These numbers provide a historical benchmark. But what does more recent data show? For this, we utilized the latest data provided by Keith Head and Thierry Mayer (Figure 2: Tests for Regionalization in Contemporary Trade Data, 1950-2019). Notice that the historical data covers a somewhat different set of countries compared to the contemporary data-set, which makes cross-data-set comparisons difficult and emphasizes within-data-set analyses.

Nevertheless, the contemporary trade data also provides no support for the regionalization hypothesis. The shares of global trade among neighbouring countries and those on the same continent is remarkably stable. And the average geographic distance that goods travel has increased in the past 20 years, especially because of China’s integration into the global economy. This rise compensated for the decrease in the 1990s that largely reflects the opening up of Eastern European countries.

3. Trade data 2016-2021

Why then do many commentators argue regionalization is happening? Thus far, we might conclude that you could see regionalization everywhere, except in the data. However, the latest data that captures the year 2020 is concerning. While this data is not yet available for all nations, we can consider import statistics from the EU. Patterns in Figure 3 (Tests for Regionalization in Latest EU-28 Trade Data, 2016-2021) were remarkably stable until the COVID-19 crisis hit in February of 2020. Notably, the share of imports from countries on the same continent increased and the average geographic distance of imports fell significantly (this is not a Brexit effect as we look at the EU-28). Pandemic-related disruptions have clearly hit international supply chains.

What does the data reveal?

One may argue that any emerging patterns in regionalization statistics are suppressed by long-run existing trade flows. We thus repeat the analysis focusing on “new trade”, i.e. product level flows between countries that never traded such goods beforehand on a commercial level (we define it as minimum $1 million). Here, we find that the average trade-weighted distance has continuously fallen over the past five years and in 2019 reached its lowest level since the financial crisis of 2008. Also, the share of new trade between bordering countries saw a significant uptick in 2019 to 18% from the 9-10% seen over the past two decades. The jury is still out on whether these recent indications of regionalization are the first signs of a systematic shift.

The COVID-19 economic crisis has put further strain on globalization. It remains to be seen if companies and policymakers permanently change their behaviour after the recovery. Growth in merchandise trade had slowed down to a crawl prior to the pandemic, according to data from the CPB World Trade Monitor. This slowdown in global trade growth appears to conflict with a contemporaneous trend: the number of trade agreements has surged in recent years.

The Global Alliance for Trade Facilitation is a collaboration of international organisations, governments and businesses led by the Center for International Private Enterprise , the International Chamber of Commerce and the World Economic Forum , in cooperation with Gesellschaft für Internationale Zusammenarbeit .

It aims to help governments in developing and least developed countries implement the World Trade Organization’s Trade Facilitation Agreement by bringing together governments and businesses to identify opportunities to address delays and unnecessary red-tape at borders.

For example, in Colombia, the Alliance worked with the National Food and Drug Surveillance Institute and business to introduce a risk management system that can facilitate trade while protecting public health, cutting the average rate of physical inspections of food and beverages by 30% and delivering $8.8 million in savings for importers in the first 18 months of operation.

According to the World Trade Organization, the cumulative number of regional trade agreements in force increased from less than 100 in the year 2000 to almost 500 today. Most of world trade now takes place between country pairs that have established a reciprocal trade agreement. Recently enacted trade agreements by the EU as well as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership suggest this number to increase further. Such agreements often facilitate trade between nations located in different geographic regions. Yet, the average geographic distance of free trade agreement partners has been remarkably stable at around 4,800km since the year 2000.

While the global financial crisis permanently reduced the speed of globalization, the world economy went into the COVID-19 crisis already with largely stagnant global trade volumes. The pattern of regionalization which now appears in the latest trade statistics enriches the debate and offers researchers new metrics to quantify the scope of regionalization.

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Does Regionalism Challenge Globalization or Build Upon It?

As the world witnesses the globe shrinking with the advancement of technology and the increasing interdependence states have upon one another, it is hard not to detect the numerous weaknesses and unaddressed atrocities that lay within the system of ‘globalized’ international relations. This paper will aim to explain that in response to the many faults the system of ‘globalization’ contains, a new form of regionalism has arisen in the world to address what global multilateralism can not. Before even expanding on such a topic, the modern term ‘globalization’ and its post-World War II origins must be defined and looked at to see why such a liberal-based system was flawed from its ‘birth.’ Then, ‘regionalism’ will briefly be defined in context so as to give an idea of the contrasting ideals each term embodies. Later, through the use of pragmatic examples such as continental governing bodies, regional trade agreements, and cultural movements, it will be proven that as a result of globalization, regionalism is rising in political, economic, and cultural spheres. To offer perspective, a counterargument will be made surrounding how regionalism might be taking a step backward in achieving global cohesiveness. However, it will be concluded that regionalism is in fact a building block of achieving a successful ‘globalized world’ and thus, must be embraced rather than avoided.

When speaking of ‘globalization,’ it is rare two people will mean the same thing as there exists a consistent disagreement regarding its sources, consequences, and whether the term even exists. [1] The ‘globalization’ that will be discussed is the version that had arisen following the Second World War as a result of the American world order imposed by the United States. The creation of the International Monetary Fund, the World Trade Organization, and the United Nations all represented the vision of a someday borderless world or rather a ‘globalized’ world. [2] Today, globalization implies the consistent growth of a world market, allows the increasing penetration of national economies, and essentially intensively ‘transnationalizes’ economic, financial, environmental, and political problems whether a state likes it or not. [3]

Political scientist Toshiro Tanaka criticizes that the basic problem of globalization is its selectiveness. “Exclusion is inherent in the process [of globalization], and the benefits are evenly balanced by misery, conflict, and violence.” [4] When it comes to the sources of globalization, they are detected in the capitalist mode of production, technological development, and/or the deregulation of financial markets. [5] To summarize, the United States in the post-war era catalyzed the version of globalization which countries recognize today as a weakly-regulated world system that favors the few and tortures the majority with transnational problems.

Regionalism, like globalization, can also be seen as somewhat vague in its meaning. First off, a region is defined not just as a geographical unit but also a social system, organized cooperation in a certain field (security, economy, cultural), and/or an acting subject with a distinct identity. It should be explained that there is a sharp contrast between “old regionalism” which existed during the Cold War period and “new regionalism” which is seen arising in modern day. [6] Old regionalism revolved around countries siding with hegemonic powers, implementing protectionist policies, acting inward oriented and specific intentions, and holding the structural realist approach of concerning itself with the actions of states. [7] NATO and the Warsaw Pact are both excellent examples of old regionalism as they were forced regional agreements as a result of the bipolar system their creators resided in.

New regionalism on the other hand, has taken shape out of the multi-polar world order and is a more spontaneous process from within the regions, where constituent states now experience the need for cooperation in order to tackle new global challenges. [8] New regionalism is a more comprehensive and multidimensional process which not only includes trade and economic development but also environmental, social, and security issues. Not to mention, it forms part of a structural transformation in which non-state actors are also active and operating at several levels of the global system. Modern regionalism goes far beyond free trade and addresses multiple concerns as the world struggles to adapt the transforming and globalizing world. [9]

In the economic sphere, regionalism has proven to be extremely effective in helping to secure markets and providing economic strength through the creation of Regional Trade Agreements (RTAs). In globalizing institutions such as the International Monetary Fund and the World Trade Organization, agreements binding governments to liberalization of markets restrict their ability to pursue macroeconomic policies. [10] However, under RTAs, economic policies remain more stable and consistent since they cannot be violated by a participant country with provoking some kind of sanctions from other members. [11] An excellent example of this is the North American Free Trade Agreement’s (NAFTA) stabilization and increase of Mexico’s political and economic policies. [12]

In the globalizing market system, huge amounts of capital can be disinvested and reinvested in a relatively short amount of time. Thus, states lose control over exchanges and economic development and as a result holds a reduced its role in its own economy. Regional Trade Agreements help nations gradually work towards global free trade through allowing countries to increase the level of competition slowly and give domestic industries time to adjust. [13] The increasing membership of less economically developed countries within the European Union, Southern Common Market (MERCOSUR), and Asia-Pacific Economic Cooperation (APEC) is testament to the economic stability offered by regional economic organizations. [14] ASEAN countries have already begun vying for RTAs with China in hopes of rebuilding economic stability and renewing growth that was shaken by the economic crisis of 1997. [15] In the end, entering regional pacts with hegemonic powers can be easily seen to be more beneficial for smaller countries than subjecting themselves to the hegemonic-controlled free market.

A major weakness globalization embodies, is its inability to effectively address transnational security and political issues. [16] As previously stated, globalization is selective and while some gain profit from the implementation of neo-liberalist principles, others are found to suffer at their hands. Hence regional organizations have been created to address more local problems and to prevent foreign intervention. [17] For example, Organization of African Unity was formed to prevent external manipulation which globalization so freely allows and reacted to eleven conflicts on the continent. Not to mention the fact that the African Union was formed out of the necessity to address what multilateral, globalizing efforts could not after the Rwandan Genocide and the crisis in Somalia. The African Union’s regional success is testified by the reduced number of interstate wars and its quick response to peace negotiations concerning the genocide in Darfur, Sudan. [18]

Besides security, globalization has failed in ensuring that multilateral political legislation be implemented throughout the world. For example, the Kyoto Protocol as well as the Climate Change Conference in Copenhagen implemented very few binding regulations in a world where globalization has made pollution transnational. The failure for a state to have control over its citizens’ health holds a dangerous effect for its legitimacy as government and thus must effectively collaborate with other actors in the world to ensure that safety. This is seen in the European Union’s carbon trade market where, despite failures seen at the Copenhagen Conference and the Kyoto Protocol, pollution regulations have been put in place. The fact that these regional management programs exist and persist, in spite of rivalries, shows the seen imperative need by states for cooperation. [19]

As a result of this high rise in globalization, states have lost control over the external relations of their societies when they are exposed to mutual cultural influences. Political Scientist Niels Lange argues that cultural influences now appear in a co-modified way. ‘Patterns of consumption are converging throughout the world, languages become “anglicized,” and the youth consumes similar styles of music and pop culture.’ [20] This spread of ‘imagined communities’ where standardization exists through language, education, and even values has faced opposition due to the culturally diminishing effect it has. Both interstate and sub-state regionalism has occurred in response to the spread of such ‘cultural globalization’ in order to preserve distinct cultural attributes.

Regionalism has responded to cultural globalization through an increase in cultural identity and the rise of regionalist parties. A perfect example is the rise of Parti Quebecois Bloc and the general cultural identity the region of Quebec holds. Being the sole French speaking region in all of mainland North America, Quebec has retained a stronghold on ensuring its Francophone tradition does not end. It remains the leader in the entire Western Hemisphere for culturally-related imports since it belongs to a country with a strong anglicized tradition and increasingly ‘globalized’ community. [21] On a much larger scale, it can be observed that cultural regionalization is occurring in European-based North America, Europe, Northeast Asia, Sub-Saharan Africa, and Latin America. Hence it can be observed that cultural regionalism has resulted from a resistance to a global identity.

With the increasing sense of regionalism growing in the world to essentially make up for the weaknesses modern globalization has failed to address, the question remains if the world is moving away from global unity. Tanaka states that new regionalism should be defined as a world order concept. ‘Since one regionalization of the world holds repercussions over other regions of the world, it is thus shaping the way in which new world order is being organized.’ [22] Not to mention, that regionalism centers on the creation of regional identity as opposed to a more global identity. After all, one of the main focuses of the European Union at the moment is its focus in creating a European identity. Thus it could be argued that ‘Huntington’s clash of civilizations’ hypothesis could be plausible under these conditions of region versus region. In the end, regionalism can be seen as simply building up states and conflict up on a larger scale. [23]

However, the build up of regionalism is made only possible by the sheer width of the world that globalization encompasses and thus could not replace the system in which it exists. With multiple multilateral institutions holding regulations over regional bodies, it is very hard for globalization and international multilateral systems to be overturned. In addition, with the rise of interregionalism, or the pursuit of formalized intergovernmental relations with respect to relationships across distinct regions, the world is able to act cohesively on a larger scale. For example, the European Union has initiate formal interregional talks with East Asia countries, developed interregional accord with MERCOSUR, and has held Asia-Europe Meetings (ASEM). Henceforth, with the political and economic stability offered to countries by regionalism, future interregional relations can be presumed to be peaceful. [24]

In the face of weakly tamed globalizing world, it has been argued that states have responded through regionalizing in order to preserve economic, political, and cultural stability. It should be concluded that regionalist blocs have resulted mostly out of the current system’s inability to address ad hoc situations occurring in various fields throughout the world; not to mention, they have also resulted from the unpredictable future the globalizing world offers with its varying economics, political motivations, and cultural migrations. Although it could be argued that regionalism is simply placing the international system on a larger scale, the amount of stability and regulation that comes with regionalism is incomparable. Therefore, it has been properly argued that regionalism is in fact a building bloc of achieving global peace and cohesiveness through its more specified and regulative approach.

[1] Niels Lange, “Fragmentation vs. Integration? Regionalism in the Age of Globalization,” European Consortium for Political Research,

[2] Carlos J. Moreiro-Ganzalez, “Governing Globalisation: The answer of Regionalism,” European Commission,

[3] Toshiro Tanaka and Takashi Inoguchi, “Globalism and Regionalism,” United Nations University Press

[4] Toshiro Tanaka and Takashi Inoguchi, “Globalism and Regionalism,” United Nations University Press

[5] Niels Lange, “Fragmentation vs. Integration? Regionalism in the Age of Globalization,” European Consortium for Political Research,

[6] Toshiro Tanaka and Takashi Inoguchi, “Globalism and Regionalism,” United Nations University Press

[7] Toshiro Tanaka and Takashi Inoguchi, “Globalism and Regionalism,” United Nations University Press

[8] Toshiro Tanaka and Takashi Inoguchi, “Globalism and Regionalism,” United Nations University Press

[9] Toshiro Tanaka and Takashi Inoguchi, “Globalism and Regionalism,” United Nations University Press

[10] “Regionalism,” Center for International Development at Harvard University,

[11] “Regionalism,” Center for International Development at Harvard University,

[12] John S. Odell, ed. Negotiating Trade (Cambridge: Cambridge University Press, 2006),

[13] “Regionalism,” Center for International Development at Harvard University,

[14] Vinod K. Aggarwal and Edward A. Fogarty, “Between Regionalism and Globalization: European Union Interregional Trade Strategies,”

[15] “Regionalism,” Center for International Development at Harvard University,

[16] Carlos J. Moreiro-Ganzalez, “Governing Globalisation: The answer of Regionalism,” European Commission,

[17] Samuel M. Makinda and F. Wafula Okumu, The African Union (Abingdon: Routledge, 2008),

[18] Samuel M. Makinda and F. Wafula Okumu, The African Union (Abingdon: Routledge, 2008),

[19] Niels Lange, “Fragmentation vs. Integration? Regionalism in the Age of Globalization,” European Consortium for Political Research,

[20] Niels Lange, “Fragmentation vs. Integration? Regionalism in the Age of Globalization,” European Consortium for Political Research,

[21] Niels Lange, “Fragmentation vs. Integration? Regionalism in the Age of Globalization,” European Consortium for Political Research,

[22] Toshiro Tanaka and Takashi Inoguchi, “Globalism and Regionalism,” United Nations University Press

[23] Mark Webber and Michael Smith, Foreign Policy in a Transformed World (Harlow: Pearson Education, 2002),

[24] Vinod K. Aggarwal and Edward A. Fogarty, “Between Regionalism and Globalization: European Union Interregional Trade Strategies,”

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Global Interdependence, Decoupling, and Recoupling

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5 Regionalization versus Globalization

Published: November 2013
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Both global and regional economic linkages have strengthened substantially over the past quarter century. This chapter employs a dynamic factor model to analyze the implications of these linkages for the evolution of global and regional business cycles. The model allows us to assess the roles played by the global, regional, and country specific factors in explaining business cycles in a large sample of countries and regions over the period 1960-2010. The findings show that, since the mid-1980s, the importance of regional factors has increased markedly in explaining business cycles especially in regions that experienced a sharp growth in intra-regional trade and financial flows. By contrast, the relative importance of the global factor has declined over the same period. In short, the recent era of globalization has witnessed the emergence of regional business cycles.

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Globalization and Regionalization: Conceptual Issues and Reflections

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Jeffrey Hart

Irah Kučerová

The end of the 20 th century has brought a number of both qualitative and quantitative changes in the functioning of the world economy. A new phenomenon is the process of the economic globalization implementing itself fully which has become the impulse for other developmental changes. The process of the economic globalization limiting the autonomy of national subjects completed the disintegration of the Westphalian system, when a state was not capable to control fully the activities of the economic subjects within its territory. But, the national states, especially in Europe, are responsible for the protection of public interests and for the supply of public goods. This dichotomy between the state power and the economic effectiveness leads to the current crisis of states, let us say crisis of the welfare states, when the strengthening competitive pressure of the liberalized world economy reduces social benefits , which the postwar generations were accustomed to. In Europe, this is especially reflected in a high degree of the institutional protection of the labour market and the pension systems that are entirely inconvenient nowadays. The process of globalization has been enabled by the institutional and political changes of the world economy in the 80's. These changes have led to the transformation of economic relationships , intensified thanks to the technological discoveries and their practical application. The gradual institutional standardization within the Uruguay Round of the GATT 1 increased the mobility of capital, and, in the same round of the negotiations, the liberalization of the international trade led to the growth of the international exchange. The fall of the Iron Curtain unified the bipolar, divided world into one economic area. Globalization has various definitions, yet, thanks to its multi-level character, it is necessary to render its most important aspects, at least. In any case, it is a process, in which the importance of the transnational and international companies within the economy of particular states is growing, and the shares of the direct foreign investments and import are going up. However, it is also a manifestation of an accelerated economic dependence of nations within the world system, which is mediated and amplified by the mass media and transport (Kottak: 1996). A logical consequence of this are changes in many aspects of the social existence of nations, states. Then, the economic globalization is a process, in which law, market and politics limit the autonomy of national subjects, because the development of economy and legislature also involves changes in politics. The economic globalization has thus contributed to the disintegration of the Westpha-lian system of international relations. For nearly 350 years, this system regulated the position of the state in foreign relations, when the state was controlling fully the activities of all

Michel Fouquin

EDITORIAL BOARD

Ramona Frunza

Rosana Pinotti

Economic Geography

Jonathan V Beaverstock

Dr. Hari Prasad Mishra

Globalization has become a familiar enough word, the meaning of which has been discussed by others before me during this conference. Let me nonetheless outline briefly what I understand by the term. I shall then go on to consider what has caused it. The bulk of my paper is devoted to discussing what we know, and what we do not know, about its consequences. I will conclude by considering what policy reactions seem to be called for.

Revocatus kashaga

Vincent Dietrich

Globalisation is what we make of it; why economic globalisation is optional and how post 2008 we are seeing a potential shift away from the hegemonic rhetoric and the beginnings of a post globalised world. Nation states have been the centre of political authority since the signing of the treaty of Westphalia in 1648 (Bowen, 2018; 2). Yet over the past 35 years the common discourse has become one of globalisation and the demise of the nation state, and its authority, especially in terms of the economy (Creveld, 2000; 5). For this reason and due to the relatively short length, this essay will focus on economic state authority, looking in particular at the power of Western states. During the late 1980s and early 1990s hyper-globalists such as Ohmae (1989) and Reich (1991) began to suggest that improvements in technology, especially in communication and transportation, were having damming effects on the power and the role nation states play in international politics (Hay, Lister, and Marsh, 2006;172-173). They further argued that labour, goods, and capital move across state boarders with ease, co-operations being able to move where it suits them best which makes the world seem borderless (Ohmae, 1996). However, this view soon came under fire from more sceptical voices, the likes of Hirst and Thompson (1999) suggesting that state power had not hugely changed; this view has since been repeated by several other theorists (see Hay, Lister, and Marsh, 2006; 174). This essay will position itself somewhere between these two arguments, suggesting that there has been an erosion of state authority-especially to large co-operations-but that this is not down to the material reality of technological advancements, faster transportation and better communication, but is instead down to its rhetorical construction. This essay will start by looking at the inaccuracies of the classic business school theory of globalisation; it will then move on to look at how globalisation theory has been constructed and how this has led to a transfer of state power to non-state actors.

Sapida Barmaki

From Globalization to Regionalization: The United States, China, and the Post-Covid-19 World Economic Order

Research Article
Published: 28 October 2020
Volume 26 , pages 69–87, ( 2021 )

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Zhaohui Wang 1 &
Zhiqiang Sun 2

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The Covid-19 pandemic has intensified the debate among optimists, pessimists, and centrists about whether the world economic order is undergoing a fundamental change. While optimists foresee the continuation of economic globalization after the pandemic, pessimists expect localization instead of globalization, given the pandemic’s structural negative consequence on the world economy. By contrast, the centrists anticipate a “U-shaped” recovery, where Covid-19 will not kill globalization but slow it down. The three existing perspectives on Covid-19’s impact on the economic globalization are not without merit, but they do not take sufficient temporal distance from the ongoing issue. This article suggests employing the historical perspective to expand the time frame by examining the rise and fall of economic globalization before and after the 2008 global financial crisis. The authors argue that economic globalization has been in transition since the 2008 financial crisis, and one important but not exclusive factor to explain this change is the evolving US–China economic relationship, from symbiotic towards increasingly competitive. The economic restructuring in US and China has begun after both countries weathered the 2008 crisis and gained momentum since the outbreak of trade war and Covid-19. The article investigates this trend by distinguishing different types of production activities, and the empirical results confirm that localization and regionalization have been filling the vacuum of economic globalization in retreat in the last decade.

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Introduction

After the White House published the Trump administration’s first National Security Strategy (NSS) report in 2017, many analysts anticipated that it represented a significant shift in America’s China policy [ 42 , 44 ]. Indeed, the great power competition between Washington and Beijing has been intensified since then. After Trump announced a series of tariff plans on Chinese goods and US–China trade disputes rapidly escalated to an unprecedented level in 2018, many observers remarked that they were fundamentally driven by the increasingly competitive US–China relationship and that the negative consequences of a trade war could spill over into other domains such as technology, military, and ideology [ 47 , 59 ]. After Trump declared that America must win the race for 5G and the US government decided its ban on Huawei in 2019, commentators regarded it as a technology cold war and the prelude to the US–China new cold war, which would probably give rise to the disintegration of the existing world order [ 28 , 68 ]. As the tension and competition intensified, both sides seemingly reached a stalemate, and neither deviated from their course. The US–China rivalry has led to more serious concerns over the end of economic globalization and its negative impact on both American and Chinese economies as well as the global economy at large.

Worse still, after the outbreak of the Coronavirus disease (Covid-19) in December 2019, people who had expected transnational cooperation in the face of the threat to global health were disappointed to find that the conspiracy theories and blame games further intensified the competition of governance models between Washington and Beijing. Despite China’s prompt and effective response to the Covid-19, the Chinese government’s policies and measures have been, to a great extent, perceived by the American counterpart as an overwhelming state with strong capability of censorship and control in contrast to a penetrated society with limited autonomy. The Trump administration proclaimed that “as demonstrated by the Chinese Communist Party’s (CCP) response to the pandemic, Americans have more reason than ever to understand the nature of the regime in Beijing and the threats it poses to American economic interests, security, and values” [ 53 ]. Therefore, the White House released the United States Strategic Approach to the People’s Republic of China to detail a whole-of-government strategy to deal with China’s challenge and protect America’s interests [ 52 ]. By contrast, the Chinese leadership not only criticized the American counterpart’s scapegoating China for its own failure in coping with the pandemic but also endeavored to set China a strong example for successfully combating Covid-19 by the lengthy white paper China’s Action to Fight the Covid-19 [ 67 ]. Similar to the situation after the 2008 global financial crisis, China once again seemed to be more confident with its model of governance as an alternative to the Western liberal model in terms of crisis management [ 15 ]. In a nutshell, the Covid-19 pandemic has added more fuel to the fire by further advancing the US–China divergence and competition, thereby giving rise to the accelerated spiral deterioration of the bilateral relationship.

The Covid-19 pandemic is undoubtedly bringing a devastating blow for the global economy, according to World Bank’s report Global Economic Prospects in June 2020 [ 63 ], but how it will influence the trajectory of economic globalization is not without controversy. The article attempts to explore what impacts Covid-19 would have on the world economic order in the context of US–China competition. Will economic globalization recover and proceed soon after the world weathers the Covid-19 crisis? Or will the US–China rivalry and the Covid-19 pandemic lead to more regional or even local (national) production? Though it is difficult to make any precise prediction in the midst of an unfolding event, it is not difficult to find optimists, pessimists and centrists of economic globalization amid the current crisis. While optimists foresee the continuation of globalization after the pandemic, pessimists expect localization instead of globalization, given the pandemic’s structural negative consequence on the world economy. By contrast, the centrists anticipate a “U-shaped” recovery, where Covid-19 will not kill globalization but slow it down. The three existing perspectives are not without merit, but the authors do not take the three scenarios as equally likely.

More importantly, the authors understand the difficulty of dealing with a present and evolving issue like the world economic order under the great power politics and the Covid-19 pandemic. Therefore, the authors suggest employing the historical perspective that enables us to study particular moments, events, and critical junctures in the context of broader movements of historical processes. Specifically, the article expands the time frame by examining the rise and fall of economic globalization before and after the 2008 global financial crisis and considers the particular impact of the Covid-19 pandemic in the historical process.

Our article has two key findings. First, the authors argue that economic globalization has been in transition since the 2008 financial crisis and that one important but not exclusive factor in explaining this change is the evolving US–China economic relationship, from symbiotic towards increasingly competitive. The economic restructuring in US and China has begun after both countries weathered the 2008 crisis and gained momentum since the outbreak of trade war and Covid-19. Second, the authors also find that localization and regionalization have been filling the vacuum of globalization in retreat in the process, which provides us a better understanding, or at least a reasonable conjecture, of the potential long-term impact of the pandemic on the world economic order.

The article begins with a brief review of the contending views on economic globalization and discusses the historical perspective to explore the changing dynamics of world economic order. Then the authors will examine how economic globalization evolves along with the US–China economic relationship in the new millennium. Based on the above analysis, the article further explores the alternative forms of production and trade in more depth and situate the impact of the US–China tariffs and the Covid-19 pandemic on the world economic order in the general trend. Finally, the article summarizes the main points and makes some suggestions for further research.

Contending Views on the Economic Globalization and the Historical Perspective

Pundits and policymakers have described the emerging world order in a variety of ways: “a world without superpowers,” “G-zero world,” “no-one’s world,” “multiplex,” “multipolar,” and so on [ 1 , 5 , 7 , 12 , 31 ]. If the 2008 global financial crisis is the prelude of the changing world order, US–China competition and Covid-19 definitely speed up the tempo. Kissinger even suggests that the Covid-19 pandemic will forever alter the world order [ 30 ]. This article focuses on the economic dimension and discusses what the world economic order would be like.

Economic globalization has sped up to an unprecedented pace since the 1980s and swept almost every corner of the world in the past few decades. While the two major crises—the 1997 Asian financial crisis and the 2008 global financial crisis—have corrected the hyper-globalist view that globalization is an irreversible and formidable project, liberal institutionalists still hold a firm belief that the world economic order based on the liberal, rule-based, and multilateral principle is resilient and durable [ 23 , 24 ]. However, after Trump took office, his attacks on the liberal world order, including but not limited to trade, multilateralism, international law, environmental protection, and human rights, have fundamentally questioned its survival [ 25 ]. With the Covid-19 soaring around the world, three contending views—optimists, pessimists, and centrists—could be identified within the existing literature on economic globalization. This section offers a critical review of the existing views and suggests that the historical perspective could be useful in understanding the trajectory of economic globalization.

First, the globalists still take a sanguine view of economic globalization in the near future. Optimists argue that, despite a certain degree of disruption to the international economic order during the pandemic, it is expected to return to the pre-crisis trajectory soon after the pandemic is contained. Economic globalization will continue once the market weathers the shock of the virus and the economic recession is ended. The most important reason is that no prior shocks, including epidemics such as the 2002–2004 SARS outbreak, 1968 H3N2 pandemic (Hong Kong flu), 1958 H2N2 pandemic (Asian flu), and 1918 H1N1 pandemic (Spanish flu), have done structural damage to the affected economies and fundamentally changed the nature of international economic order [ 9 , 27 ]. Since statistics show that economic recovery from the prior pandemics was quick (i.e., V-shaped), economic recovery from Covid-19 will be more similar than different this time, as social distancing nowadays is not dramatically different from then [ 37 ]. Furthermore, optimists, especially the liberal internationalists, also strive to argue that Covid-19 will not kill globalization but reveal no one can go it alone. Covid-19 will make political leaders more aware that international cooperation is critical for effective mass testing and treatment for the virus, and then countries are expected to work together to improve production and distribution [ 18 , 26 ].

Second, in contrast to the optimists, pessimists expect localization instead of globalization given the pandemic’s structural negative consequence on globalization. They have little hope of effective international cooperation under the current structure (underlying anarchy) of global governance on the one hand [ 40 ] and believe that Covid-19 will have significant and sustaining structural damage to the world economy on the other [ 63 ]. For instance, according to a recent poll from Reuters, nearly half of the economists expect a U-shaped recovery, more than any other option such as V-shaped or L-shaped [ 46 ]. Paulson [ 41 ] suggests that Covid-19 has triggered the worst economic downturn since the Great Depression and foresees a future that “belongs to the techno-nationalists” owing to “Beijing’s emphasis on indigenisation and Washington’s on relocating supply chains and sequestering technology.” In this scenario, pessimists view the Covid-19 crisis as a systemic and long-lasting crisis that is even more severe than the 2008 global financial crisis and, to a great extent, comparable to the Great Depression. The virus’s structural negative effect, as well as the lack of international coordination and cooperation, will put an end to this round of economic globalization. Given this, we should expect a wave of economic nationalism and localization to replace globalization. While both inter-regional and intra-regional production and trade will decrease, the share of domestic economic activities will rise.

Third, the centrists, as the name suggests, stand somewhere in the middle: The world economy will recover anyway, but not as quickly as optimists anticipate and as hard-hit as pessimists foresee. In this scenario, it is tempting to compare the current Covid-19 crisis to the 2008 global financial crisis: both have produced extraordinary volatility in financial markets and caused far-reaching economic repercussions. It is argued that Covid-19 will not kill globalization, but globalization will slow down after all. Many terms have been coined to describe this picture. For example, Zheng [ 69 ] suggests that economic globalization will not simply ebb but return to “limited globalization,” similar to the one before the 1980s. Bakas coins the term “slowbalisation” to describe the faltering globalization in the last few years [ 48 ]. Regardless of the terms, the new normal of economic globalization essentially has two implications. First, it implies continued integration of the global economy but albeit at a significantly slower pace. Second, “slowbalization will lead to deeper links within regional blocs” [ 49 ]. As Covid-19 has exposed the dangers of relying on any one country for needed inputs or final products, it is important for countries to regionalize their supply chains and companies to diversify their trading partners in the face of a considerable period of slower economic growth. In a nutshell, Covid-19 will not put an end to economic globalization; rather, it will promote other forms of economic integration such as regionalization.

While the three perspectives are not without merit, especially insofar as they propose different scenarios of how we could grasp the potential impact of the Covid-19 pandemic on the economic globalization, the three scenarios should not be treated as equally likely. Specifically, it is very unlikely that, as the optimists expect, a quick recovery of the world economy and economic globalization will happen in a few months. It is not difficult to draw this conclusion if we carefully read China as a typical case study. Even if China was the first country to impose stringent lockdown measures, the first to lift them, and the first to get some economic activities back on track, the Chinese economy is unlikely to return to normalcy until the last quarter of 2020 [ 70 ]. More importantly, there are good reasons to be skeptical that other countries will and can follow China’s model of containing the virus. For instance, Normand suggests that “the U.S. and global economy might exhibit more U than V-shaped characteristics as occurred after the global financial crisis, so will likely fail to recoup its 2020 first half output loss even by the end of 2021” [ 27 ]. Under the circumstance, the Covid-19 pandemic is expected to bring sustained disruptions to global trade, supply chains, and investment flows.

Despite the above seemingly plausible analysis, we have to admit that it is currently difficult to draw any firm conclusion and prediction in the midst of an unfolding event, as the future is undeniably influenced by many uncertain factors. In this case, the authors suggest that, if we employ the historical perspective to take a longer-run view, we can get a more comprehensive and clearer picture of how economic globalization gains and loses momentum. It helps us to explore the particular impact of the Covid-19 pandemic on the world economic order and find which scenario to be more likely afterward.

However, it is worth clarifying the historical perspective herein before we embark on the historical analysis, as IR scholars have examined history in different ways and deployed history for different purposes [ 8 , 10 , 11 , 20 , 33 , 57 ]. The authors do not intend to add further fuel to the existing debates among the various historical perspectives [ 6 ], but to state clearly that they have referred the aforementioned historical perspective in this article to a research method. This historical method does not simply mean looking back to history, which is of course necessary, but more importantly, it studies particular moments, events, and critical junctures in the context of broader movements of historical processes [ 34 ]. As Ziblatt [ 71 :3] suggests, “temporal distance—moving out from single events and placing them within a longer time frame—can also expose previously undetectable social patterns.” Like archaeologists working too close to the ground, we may fail to see the trajectory of economic globalization if we do not take sufficient temporal distance from the Covid-19 crisis. All three existing perspectives on Covid-19’s impact on the world economy and globalization have such a shortcoming, and this article strives to highlight this crucial issue. Therefore, the authors propose to shift our perspective and examine the trajectory of globalization within a longer time frame. The length of the time frame is of course not fixed and hinges on the object of study. In this research, the authors propose a range of twenty years to examine the continuities and changes in the cycle of globalization and deglobalization in the new millennium. The longer-run view is helpful in discerning not only the important pattern of a historical process but also the particular impact of a historical event such as an economic crisis and a deadly pandemic. We can probably gain a better understanding of the post-pandemic world economic order if we take Covid-19’s impact into account within the historical dynamics of economic globalization.

The Ebb and Flow of Economic Globalization before and after the 2008 Crisis

The section examines the turning points as well as the ebb and flow in the evolution of economic globalization in the new millennium. As America and China are two of the most important economies and their economic relationship is critically important for globalization in the twenty-first century, the authors will read it as a typical case study to examine how economic globalization evolves along with the bilateral economic relationship.

Before the 2008 financial crisis, the US–China economic relationship was more complimentary and cooperative in nature. America and China essentially formed a symbiotic relationship: the US consumed China’s cheap exports, paying China in dollars, and China held US dollars and bonds, in fact, lending money to the US. Essentially, China’s export-driven growth and its accumulation of dollar reserves and US debts were closely intertwined with the dollar hegemony in the international monetary system and America’s increasing over-drafting consumption and trade deficit [ 16 , 21 , 22 ]. Some observers even perceived the two economies as conjoined twins, “ChinAmerica” [ 29 ] or “Chimerica” [ 17 ], which was based on Chinese export-led growth and American overconsumption. The US–China symbiotic economic relationship was demonstrated in Figs. 1 and 2 . Figure 1 shows China’s overall trade surplus and a bilateral trade surplus with the US from 1994 to 2008. After its accession to the WTO membership in 2001, China’s position in global trade and payments substantially changed. Its trade surplus rose sharply from 2003, as did its bilateral trade surplus with the US. Figure 2 reveals the corresponding dramatic increase in China’s holdings of foreign reserves and US securities from 2001 to 2008. It is estimated that about two-thirds of China’s reserves were held in the form of dollar debt [ 58 ].

China’s overall trade surplus and a bilateral trade surplus with the US, 1994–2008. Source: IMF Direction of Trade Statistics (March 2020 Edition), https://stats2.digitalresources.jisc.ac.uk/?Dataset=DOTS&ShowOnWeb=true&Lang=en

China’s foreign reserves and holdings of US securities, 2001–2008. Source: IMF International Financial Statistics (March 2020 Edition), https://stats2.digitalresources.jisc.ac.uk/?Dataset=DOTS&ShowOnWeb=true&Lang=en

Therefore, after its accession to the WTO membership in 2001, China developed its complementary economic relationship with the US and increasingly integrated into the world economy. The US–China economic relationship was one of the most important engines of economic globalization before 2008. As Fig. 3 demonstrates, the world trade as a percentage of the world GDP was generally on the rise during the golden period of economic globalization; the ratio of China’s international trade to GDP climbed up from around 40% to more than 60% quickly in the process, and the US experienced slow but steady growth as well after the economic downturn in 2001.

Trade as % of GDP: World, the US, and China, 2000–2008. Source: World Bank Data

However, with the benefit of hindsight, the 2008 global financial crisis marked an important turning point in the trajectory of economic globalization. The crisis exposed China’s severe vulnerability in the symbiotic economic relationship with the US. Figure 4 shows while China’s exports grew by an average of more than 20% month-by-month for most of 2008, they fell dramatically by 2.2% in November and experienced considerable negative growth in 2009, which made China’s political elites more aware of the disadvantages of over-dependence on the US market and dollar. Under the circumstance, the Chinese government rolled out a series of ad hoc rescue policies, including the mega fiscal stimulus plan and expansionary monetary policy in 2009. Though the Hu-Wen administration recognized the unsustainability of China’s export-driven growth model, the Chinese leadership placed priority on growth and stability and put domestic economic reforms in the secondary place in the face of the crisis.

China’s monthly export growth rate, 2007–2009. Source: National Bureau of Statistics, People’s Republic of China, https://data.stats.gov.cn/easyquery.htm?cn=A01

More importantly, after both countries weathered the crisis, the US–China economic relationship became increasingly competitive. This is a result of a variety of factors, including China’s domestic economic reforms and growing ambition in global economic governance [ 60 ]. It is worth noting that after he consolidated and centralized power within China’s political system, Xi Jinping was more confident and capable in carrying out substantial reforms in both domestic and international domains.

Domestically, Xi clearly aimed to change China’s growth model to one driven by domestic consumption and innovation, instead of inexpensive exports and low-efficiency investments [ 65 ]. Not only did China demonstrate its plan to steer away from labor-intensive industries to high-tech manufacturing, it also showed its ambition to become a global leader in innovation by releasing the national blueprint “Made in China 2025.” The guideline pledges that “China will be an innovative nation by 2020, an international leader in innovation by 2030, and a world powerhouse of scientific and technological innovation by 2050” [ 51 ].

Internationally, China gradually became a proactive participant in global economic governance under the Xi administration. China put forward the Belt and Road Initiative (BRI) and established the Asian Infrastructure Investment Bank (AIIB) to fund infrastructural projects in Asia. Though China claimed that both BRI and AIIB had a supplementary nature to the pre-existing institutions such as World Bank and International Monetary Fund (IMF), many consider them as China’s challenge to the pillars of the US-dominated liberal world order. The stories of how Beijing built an alliance to create AIIB in the face of Washington’s opposition and how Washington forged the Indo-Pacific alliance to contain BRI’s increasing influence demonstrate the contestation between the US and China for leadership in global economic governance [ 14 , 45 ].

With China’s continued economic restructuring and industrial policy, China was upgrading its exports from labor-intensive to more capital and technology-intensive products, which caused more competition with products manufactured in advanced/industrialized countries. China’s attempt to expand its economic and financial influence regionally and internationally further intensified the competition. This growing competitive nature of the US–China economic relationship after the 2008 global financial crisis has also been captured by empirical studies. For instance, Kwan [ 32 ] finds that owing to China’s increasingly sophisticated trade structure in recent years, China’s complementarity with industrialized countries (the United States, Japan, and Germany) has been diminishing, and competition with newly industrializing economies (India and Indonesia) and resource countries (Australia and Russia) has also been decreasing.

While the US–China symbiotic economic relationship added momentum to economic globalization before 2008, the increasingly competitive nature of the bilateral economic relationship slowed it down, if not to say reversing the trend. As Fig. 5 suggests, international trade was severely hit and then recovered from the 2008 global financial crisis, but the world trade as a percentage of world GDP did not continue to grow after 2011. During the period from 2011 to 2018, China’s trade-to-GDP ratio experienced a significant decline, from more than 50% down to less than 40%, compared to America’s slow and slight counterpart, with no more than 5% decrease. This corresponds with the aforementioned cases in which China was more proactive in adjusting its economic relationship with the US and its way to participate in economic globalization after the 2008 global financial crisis.

Trade as % of GDP: World, the US, and China, 2008–2018. Source: World Bank Data

Now we can gain a better understanding that economic globalization has been in transition since the 2008 financial crisis. The world economy experienced a U-shaped recovery after the 2008 crisis, and some fundamental changes in the nature of globalization have taken place since then. Economic globalization reached the turning point in the 2008 crisis, and the aforementioned slowbalization is quite accurate to describe the subsequent development, if not to say reversed globalization. One important but not exclusive factor in explaining this change is the evolving US–China economic relationship, from symbiotic towards increasingly competitive. This is, of course, not to say that the US and China have no or little economic complementarity presently. Economic indicators such as US–China bilateral trade volume and China’s holdings of US Treasury bonds suggest that the two countries are still very important economic partners to each other. It would be a mistake, or at least too early, to say that the nature of the US–China economic relationship has fundamentally changed at this stage. The emphasis of this section is not on the transformed consequence but on the evolutionary process, in which the US experienced intensified anxiety regarding China’s growing competitiveness. In this sense, it would be easier to understand why several key US government agencies expressed such concerns in 2017 and Trump began to fight a trade war against China after 2018 [ 55 , 56 ]. Though there is no official data from World Bank for 2019 and 2020 yet, it is plausible to speculate that the global and bilateral trade would further shrink with the US–China tariffs implemented and the outbreak of Covid-19 [ 4 , 64 ]. While the trade war reveals the risk of manufacturing goods in China for export and highlights the need to deliver the production of some goods elsewhere, the Covid-19 further drives the American government and companies to move US production and supply chain dependency away from China. The following section will further analyze how regional and domestic forms of production and trade developed in the face of slowbalization after the 2008 crisis.

Exploring Globalization, Regionalization, and Localization: Some Empirical Results

The historical perspective has shed light on the ebb and flow of economic globalization along with the evolving US–China economic relationship from symbiotic towards increasingly competitive before and after the 2008 global financial crisis. It suggests that the economic restructuring in US and China has begun after both countries weathered the 2008 crisis and gained momentum since the outbreak of trade war and Covid-19. However, it is worth exploring the economic restructuring in more depth or, put more specifically, to examine the alternative forms of production and trade in the face of globalization in retreat after the 2008 crisis. The authors find that localization and regionalization have been filling the vacuum of globalization in retreat in the slowbalization process.

Before we set out on the journey, we need to distinguish different types of production activities. The authors follow the methodology of Wang et al. to decompose production activities into four types [ 61 ]. The first type, purely domestic or localized, is added value produced and the final product consumed at home without involving international trade. The second type, traditional international trade, is an added value produced at home and final product exported for international consumption, such as China’s cloth in exchange for America’s soybeans. The third and fourth types involve intermediate trade and cross-border production. The third is a simple type of global value chain (GVC) when the intermediate product crosses border once for foreign production, such as China’s steel produced for America’s building. The fourth is a complex type of GVC if the intermediate product crosses borders at least twice to produce final export for other countries, such as iPhone’s manufacturing lines [ 62 ].

After the decomposition, Fig. 6 demonstrates how the four types of production activities evolved from 1995 to 2017. A few patterns are noteworthy. First, the relative importance of domestic production activities was decreasing before 2008, while the shares of traditional, simple, and complex GVCs were generally increasing. This corresponds with our aforementioned analysis that economic globalization before the 2008 global financial crisis. Moreover, it further demonstrates that economic globalization was, to a larger extent, driven by the complex GVC activities, whose share experienced a faster increase that those of tradition and simple GVCs. Second, after the shape decline of international trade in 2009, all three GVC activities took two years to return to the pre-crisis level, which resonated with the U-shaped recovery of the world economy. Third, the relative importance of domestic production activities was increasing after 2011, while traditional, simple, and complex GVCs was generally decreasing. The decline was the steepest for complex GVC activities, and this once again corresponds with our aforementioned analysis that the 2008 global financial crisis was a watershed and that globalization slowed down subsequently.

Four types of production activities as a share of global GDP, 1995–2017. Source: Xin Li, Bo Meng, and Zhi Wang, “Recent patterns of global production and GVC participation,” in World Bank and World Trade Organization, Global Value Chain Development Report 2019 , Washington, D.C.: World Bank Group, p. 12

Furthermore, if we more carefully examine the latest data (as of 2017) and visualize the three GVC activities through network analysis, we can find some structural characteristics of the international production networks. First, as shown in the upper-left of Fig. 7 , the three hubs of traditional trade networks are Germany, China, and the US, which have important linkages with each other. Second, for both simple and complex GVC trade networks, we can no longer find any important direct linkage between any two hubs. The upper-right of Fig. 7 shows that simple GVC activities are to a great extent concentrated within each of the three regions, except for the US and Germany’s indirect link through the Netherlands. Complex GVC activities are more concentrated among regional trading partners (see the bottom of Fig. 7 ) [ 62 ]. Therefore, a tentative conclusion can be drawn that globalization is in retreat while localization and regionalization are filling the vacuum.

Supply hubs of three GVC activities trade networks in 2017. Source: Xin Li, Bo Meng, and Zhi Wang, “Recent patterns of global production and GVC participation,” in World Bank and World Trade Organization, Global Value Chain Development Report 2019 , Washington, D.C.: World Bank Group, p. 27

This localized and regionalized nature of the value chain in the last decade has also been captured by some existing empirical research. For instance, Baldwin and Lopez-Gonzalez base their analysis on two latest data sets—the World Input–Output Database (WIOD) and the Trade in Value Added (TiVA) Database—to suggest that the global value chain is no longer accurate to describe the international production network, which is predominantly regional in scope [ 3 ]. They provide a strongly supportive argument that “the global production network is marked by regional blocks, what could be called Factory Asia, Factory North America, and Factory Europe” [ 3 ]. Their research suggests a transition of international production networks from “Factory World” to regional production systems.

Moreover, McKinsey’s several pieces of research reports confirm that regionalization is restructuring the global value chain. Specifically, it is strongly argued that nearshoring and regionalization of apparel production and trade (that is, production in places like Turkey for the European market and Mexico for the US market) is more profitable today and is likely to become more so in the decade ahead [ 2 ]. Global innovations value chains are also found to experience very pronounced shift toward regionalization, given their need for just-in-time sequencing [ 36 ]. It is estimated that “the intraregional share of global goods trade has increased by 2.7 percentage points since 2013,” which is considerably driven by the increasing trade flows within the EU-28 and within the Asia-Pacific region [ 36 ]. In a nutshell, the empirical results reveal the trend that value chains are becoming more regionalized and less global in the last decade.

Despite the fact that no rigorous study can be possibly conducted on the recent development owing to the lack of complete data, it is plausible for us to speculate that the US–China trade tension and the Covid-19 would make the production and trade networks even more regional and less global. The trend can be analyzed from both the macro-level and the micro-level.

From the macro perspective, as the World Trade Organization (WHO) is on the road to becoming defunct under the Trump administration and the Covid-19 pandemic further represents an unprecedented disruption to the global trade, countries are speeding up to forge regional trade agreements to mediate the trade uncertainty. For example, the US, Mexico, and Canada signed the new free trade agreement, United States–Mexico–Canada Agreement (USMCA), to replace the old North American Free Trade Agreement (NAFTA) in December 2019. The Regional Comprehensive Economic Partnership (RCEP) negotiations among the Association of Southeast Asian Nations (ASEAN) along with China, Japan, South Korea, India, Australia, and New Zealand advanced to the final stage in 2019. Though India finally decided not to join because of domestic problems, 15 other participating states agreed to forge ahead [ 39 ]. The tariff wars and Covid-19 do not, of course, constitute the sole cause of the regionalization project, but they are playing the role of catalyst or accelerator in the process.

From the micro perspective, global trade disruption has impelled companies to revaluate the operational strategy, such as where to place production and locate operations. It becomes more necessary for transnational companies to regionalize and diversify their supply chains in order to cope with the rising risks. For instance, according to the McKinsey Global Surveys in 2018, nearly half of respondents stated that their companies would shift their global footprint in response to the US–China trade tension, and one-quarter said they would invest more in regional and local supply chains [ 35 ]. When it came to 2019, according to the surveys by supply chain consultancy QIMA, over 75% of US respondents reported being affected by the US–China tariffs, and 80% of US respondents and 67% for those based in the EU expressed that they had already begun to diversify their supply chains and strengthen their presence in the local regions, or had plans to do so in the near future [ 43 ]. The Economist Intelligence Unit recently examines how Covid-19 has impacted and will continue to fundamentally reshape global supply chains, and strongly argue that Covid-19 will fundamentally reshape trade, accelerating the trend towards shortening supply chains [ 50 ].

To summarize, the empirical results confirm that while economic globalization continues to slow down, the relative importance of domestic and regional production activities has been on the rise in the last decade. Both the US–China tariff war and the Covid-19 pandemic have exposed the dangers of relying on any one country for needed inputs or final products, which make it increasingly important for countries to regionalize or localize their supply chains and companies to diversify their trading partners in the face of global trade uncertainty. In a nutshell, US–China competition and Covid-19 will not put an end to economic globalization, rather, they will promote other forms of production activities such as regionalization and localization.

Concluding Remarks

The Covid-19 pandemic has intensified the debate about whether the world economic order is undergoing a fundamental change. As Winston S. Churchill once suggested, “the farther backward you can look, the farther forward you are likely to see.” Since optimists, pessimists and centrists can hardly reach a consensus on what the post-Covid-19 world economic order will be like, the authors suggest taking sufficient temporal distance from the temporary ongoing issue. The article has employed the historical perspective to expand the time frame by examining the trajectory of economic globalization in the new millennium and consider the particular impact of the Covid-19 pandemic in the historical process. It emphasizes the continuities and changes in the cycle of globalization and deglobalization. The longer-run view is helpful in discerning important patterns and situating a crisis’s particular impact in the more general trend, so that we can get a better understanding of the post-Covid-19 world economic order.

The article has argued that the world economy experienced a U-shaped recovery after the 2008 crisis, and some fundamental changes in the nature of economic globalization have taken place in the past decade. Slowbalization is quite accurate to describe the new normal of economic globalization, and one important but not exclusive factor to explain this change is the evolving US–China economic relationship, from symbiotic towards increasingly competitive. More importantly, the article makes a contribution by examining the different forms of production and trade activities in the past decade. The empirical results reveal that localization and regionalization have been filling the vacuum of economic globalization in retreat in the last decade. As O’Sullivan [ 38 ] suggest in his book, The Levelling: What’s Next After Globalisation , globalization is fading away behind us, and we are embracing the emerging multipolar world, which is dominated by at least three large regions: North America, Europe, and a China-centric Asia. The article confirms this point and suggests that the US–China tariff war and the Covid-19 pandemic are not the beginning but the accelerators or catalysts of this more general trend.

The article presents a more nuanced study of economic globalization in the last two decades and provides a perspective to understand the impact of the US–China tariff war and the Covid-19 pandemic on the world economic order. Our article definitely invites some more future research. First, though the centrist’s view of a U-shaped world economy and slowbalization seems to be more likely, we still need to keep track of how things really unfold. As both the US–China rivalry and the Covid-19 pandemic is still ongoing, the only certainty is that nothing is certain for the post-Covid-19 world economic order. If it is really so, we also need to more rigorously study the transformation of the world economy and the extent to which economic globalization is slowed down by the pandemic, after the economic data becomes available.

Second, it is worth noting that neither the US–China competition nor the Covid-19 pandemic constitutes the sole cause of the global transformations of production and trade looming ahead. Though some empirical results have revealed that economic globalization is slowing down and regionalization is filling the vacuum, we are not yet fully aware of the complex dynamics and the underlying mechanisms. Other forces that drive regionalization include but are not limited to new technologies, changing global consumption patterns, as well as the dynamic benefits and costs of location decisions [ 36 ]. It is probably necessary to probe into different industries in different countries and regions [ 66 ]. It is also necessary to combine quantitative and qualitative methods to explore the decisions made by businesses regarding where to place production and locate operations. The sectoral and dynamic analyses of value chain transformation are likely to be very important in the near future.

Last but not least, if we would like to more specifically examine how regionalization evolves over the past few years, we should adopt some different methods to decompose the international production and trade. For example, we can pay special attention to whether added value produced is within a single country, within a single region or covering at least two regions and thus separate different networks of value chain production into three types—domestic value chain (DVC) production, regional value chain (RVC) production and global value chain (GVC) production [ 19 ]. Generally speaking, the more RVC production, the higher the degree of regional economic integration, whereas the more GVC production, the higher the degree of economic integration into the global economy [ 62 ]. Then we are able to more precisely calculate the relative importance of regionalization by measuring and comparing shares of DVC, RVC, and GVC based on data from WIOT [ 13 , 54 ]. Unfortunately, WIOT’s most recent release is the November 2016 version. We need to wait a couple of years to get access to the data as of 2020, if we intend to analyze how regionalization evolves in the context of the US–China rivalry and Covid-19.

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Acknowledgements

The authors would like to acknowledge funding support from two research grants by Fujian Federation of Social Science Circles (grant number: FJ2018C025) and Fundamental Research Funds for the Central Universities (grant number: 20820181018). The authors are also very grateful to the School of International Relations at Xiamen University for providing outstanding facilities for research, including but not limited to the office, the library and the shower room.

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Wang, Z., Sun, Z. From Globalization to Regionalization: The United States, China, and the Post-Covid-19 World Economic Order. J OF CHIN POLIT SCI 26 , 69–87 (2021). https://doi.org/10.1007/s11366-020-09706-3

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Difference between Globalization and Regionalization

Globalization refers to the process of expanding your business operations onto a global scale. This can include selling products or services in other countries or setting up offices or factories in other parts of the world. Regionalization is the opposite of globalization – it refers to the process of dividing your business into smaller units that operate within specific geographic regions. Let’s take a closer look at these two concepts.

What is globalization.

Globalization is a “process of interaction and integration among people, companies, and governments worldwide”. It describes the growing interdependence of the world’s economies, cultures, and populations, brought about by cross-border trade in goods and services, technology, and flows of investment, people, and information” [Source] .

What is an example of Globalization?

Globalization is the growth on a worldwide scale. This can be seen in religions such as Christianity and Islam. Other examples of globalization include spreading human rights, women’s rights and equality values, music genres, and political ideologies.

What is Regionalization?

Regionalization is the process of dividing an area into smaller segments called regions. It points to the “decomposition of the world into smaller economic units and regional integration groupings” [Source] .

What are different types of Regionalism?

Types of regionalism include “economic regionalism, linguistic regionalism, political regionalism and even sub-regional movements” [Source] . In terms of establishing states, the types of regionalism are supra-state, inter-state and intra-state regionalism. In politics, “regionalism is an ideology that highlights the local identity, the need for independent regional planning and administrative freedom. It promotes the manifestation of cultural singularities and prioritizes the region’s interest over the interest of the nation as a whole” [Source] .

What is the function of Regionalization?

Regionalization “breaks larger territories into useful units that geographers need to conduct their specific research”. Also, regionalization’s “goal is to create a given number of districts, each comprising a contiguous block of territory and within a set margin of error for its total population or electorate” [Source] . Regionalization “establishes the regions as administrative and political units within the national state”. More so, “From the aspect of the state as a superior entity, regionalization contributes to achieving a balanced development of the region and more efficient connection of state authorities to the local one” [Source] . All these factors show that regionalization is vital in creating manageable units of a larger scale of land and integrating the smaller units into an administrative branch with distinctive functions.

What is an example of Regionalism?

Regionalism is a “political focus on one specific area of a country. In the U.S., the perceived difference between Southerners and New Englanders is one example of regionalism” [Source]

The difference between globalization and regionalization is that globalization refers to “international integration arising from the interchange of world view, products and ideas, and other aspects such as technology”, and regionalization is the division of an area into smaller segments called regions. Globalization promotes the integration of economies worldwide, but regionalization tends to oppose integration and bring divisions. There is a free market and opportunity to trade internationally with globalization, while regionalization promotes monopolization. Globalization tends to propel multiculturalism, but regionalization creates boundaries in distinctive cultures.

Due to globalization, a community can help others worldwide, but a regionalized system might choose not to get involved in foreign matters. Globalization led to advanced technology because of sharing ideas whilst a regionalized system tend to lag [Source] .

Similarities between Globalization and Regionalization

Similarities between globalization and regionalization include that these terms are social drivers that can either unite or divide people. Also, both entities can be used in politics, society and economies. Globalization and regionalization have led to the removal of certain traditions and cultures in society. This happened when people became a global village, and others distanced themselves from the rest of the world.

Is Regionalization synonymous with Globalization?

Wikipedia notes that “Regionalization as a trend of global development” [Source] means that globalization influenced regionalization, but this does not imply that regionalization is synonymous with globalization.

What is the difference between State-to-State Regionalism and Non-Regionalism?

State-to-state regionalism means “regionalized unitary state, ” a term used to denote a formally unitary state where a high degree of political power has been highly decentralized to regional governments. In many cases, the regions are based on long-standing cultural divisions”, and non-state regionalism is also called “Non-state nation or stateless nation. An ethnic group or nation that does not possess its state (state to state) is not the majority population in any nation-state. The term non-state implies that the group should have such a state” [Source] .

Kevin Gurley

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1 0000000404811396 https://isni.org/isni/0000000404811396 International Monetary Fund

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Abstract: Both global and regional economic linkages have strengthened substantially over the past quarter century. We employ a dynamic factor model to analyze the implications of these linkages for the evolution of global and regional business cycles. Our model allows us to assess the roles played by the global, regional, and country-specific factors in explaining business cycles in a large sample of countries and regions over the period 1960–2010. We find that, since the mid-1980s, the importance of regional factors has increased markedly in explaining business cycles especially in regions that experienced a sharp growth in intra-regional trade and financial flows. By contrast, the relative importance of the global factor has declined over the same period. In short, the recent era of globalization has witnessed the emergence of regional business cycles.

I. Introduction

The inexorable forces of globalization and regionalization have reshaped the world economic landscape over the past quarter century. Global trade and financial flows have registered unprecedented growth during this period. Intra-regional economic linkages have also become much stronger with the proliferation of regional trade agreements and common currency areas.

These developments have appeared to affect the evolution of global and regional business cycles in unexpected ways. For example, despite the presence of strong global trade and financial linkages, there was significant variation in growth performance across different regions during the 2008–09 financial crisis. Specifically, some regions (e.g., Asia) exhibited surprising resilience during the worst of the financial crisis and rapidly returned to high growth whereas some others (e.g., North America and Europe) experienced deep and prolonged contractions. 2

These observations lead to a basic question: “Have regional elements become more important in driving business cycles in an era of globalization?” We answer this question using a dynamic factor model. Our model allows us to analyze the sources of fluctuations in output, consumption, and investment in a large sample of countries over a long period of time. Specifically, it includes 106 countries over the period 1960–2010 and covers seven geographical regions: North America, Europe, Oceania, Asia, Latin America and the Caribbean, Middle East and North Africa, and Sub-Saharan Africa. The model decomposes fluctuations in these variables into four factors: a global factor that captures the broad common elements in the fluctuations across countries; regional factors, which capture the common elements in the cyclical fluctuations in the countries in a particular region; country-specific factors, which capture factors common to all variables in a particular country; and residual (“idiosyncratic”) factors, which are associated with elements in the fluctuations of an individual variable that cannot be attributed to the other factors.

Our results indicate that, since the mid-1980s, the importance of regional factors has increased markedly in explaining business cycles especially in regions that experienced a sharp growth in intra-regional trade and financial flows. These patterns are particularly strong among the North American, European, Oceanian, and Asian regions. By contrast, the importance of the global factor has declined over the same period. Moreover, there has been no significant change in the degree of international synchronization of cycles as measured by the joint contribution of the global and region-specific factors to fluctuations during the past quarter century. These patterns are valid not only for output, but also for consumption and investment fluctuations. In short, the recent era of globalization has witnessed the emergence of regional business cycles.

There have been profound changes in the volume, direction, and nature of international trade and financial flows over the past quarter century ( Kose and Prasad, 2010 ). These changes certainly have global dimensions, but at the same time they have also been driven by regional forces. First, while global trade flows have been growing at a much faster rate than world output, intraregional trade flows have been playing an increasingly more prominent role in global trade. This reflects, in part, the process of economic unification in different regions and some emerging economies’ (e.g., China, India, and Korea) rapid growth during the past quarter century. In addition, intra-regional trade and financial linkages have further strengthened by the explosion in the number of regional trade agreements (from 5 in 1985 to 200 in 2011). 3

Second, intra-industry trade flows have contributed significantly to the unprecedented increase in global trade during the past two decades. These flows have grown rapidly in certain regions, including North America, Europe and Asia. 4 International vertical specialization, which refers to the fragmentation of production processes into sequential chains in multiple countries, has been a major factor fuelling the substantial increase in global trade flows. This has led to a significant rise in the ratio of trade to value added in North America, Europe, Asia, and some parts of Latin America ( Hummels, Ishii, and Yi, 2001 ; and Yi, 2003 ).

Moreover, the volume of global financial flows has reached unprecedented levels since the mid-1980s overshadowing the increase in global trade over the same period. Intra-regional flows have also been on the rise for the past 15 years, especially in Europe and Asia. Financial flows among advanced economies have still been the main driving force of the increase in international financial flows, but there has also been a significant rise in flows between regions with advanced countries and those with developing economies over the past 25 years (Lane and Milesi-Ferretti, 2007; Milesi-Ferretti, Strobbe, and Tamirisa, 2010 ).

Neither economic theory nor empirical research provides definitive guidance concerning the impact of increased trade and financial linkages on the degree of synchronization of global and regional cycles. On the one hand, international trade and financial linkages generate both demand and supply-side spillovers across countries that can result in more highly correlated business cycles. On the other hand, if stronger trade and financial linkages are associated with increased specialization, they can lead to a decline in the degree of business cycle synchronization. While a number of empirical studies conclude that trade linkages have a positive effect, they report mixed findings on the impact of financial flows on the synchronization of business cycles. Although the quantitative importance of region-specific factors in explaining business cycles has been an area of intensive study, the results of this research program have been far from conclusive.

In light of the mutually complementary nature of globalization and regionalization, we turn to an empirical approach that has the potential to provide a comprehensive perspective on the evolution of global and regional business cycles. Our methodology builds on our earlier work ( Kose, Otrok, and Whiteman, 2003 ), but we consider a different question and employ a much larger dataset with a substantially longer time span in this paper (see Appendix I for the sample of countries and regions). The use of a large sample of countries allows us to draw a sharp contrast across different regions in terms of their exposure to external shocks. In addition, the relatively long time span of the data enables us to consider distinct sub-periods and to analyze the changes in business cycles that have taken place during the recent wave of globalization (1985–2010) relative to the earlier period. These differences are essential to uncover our headline result on the emergence of regional cycles.

Our model simultaneously captures contemporaneous spillovers of shocks as well as the dynamic propagation of business cycles in a flexible manner, without a priori restrictions on the directions of spillovers or the structure of the propagation mechanism. The dynamic factor model we employ can be seen as a reduced-form solution of a standard open economy Dynamic Stochastic General Equilibrium (DSGE) model in the sense that data generated from that model has an approximate representation as a dynamic factor model ( Crucini, Kose, and Otrok, 2011 ). However, typical DSGE models face the curse of dimensionality that limits the number of shocks and driving variables that can be analyzed in these models. Our factor model provides a parsimonious representation of the data, allowing us to consider a large number of macroeconomic variables to study the evolution of global and regional business cycles.

The estimated global, regional and country factors in our model reflect elements of commonality of fluctuations in different dimensions of the data. The importance of studying all of these factors in one model is that they obviate problems that could be caused by studying a subset of factors, which could lead to a mischaracterization of commonality. For instance, regional factors estimated in a smaller model may simply reflect global factors that are misidentified as being specific to a particular region. Moreover, by including different macroeconomic aggregates, we get better measures of the commonality of fluctuations in overall economic activity. 5

We present a brief survey of theoretical and empirical studies on the impact of integration on the degree of business cycle synchronization in Section II . Our empirical model and database are introduced in Section III . Section IV reports the results of estimations for the full sample. Section V discusses the evolution of global and regional cycles over time. Section VI summarizes the results of our sensitivity experiments. Section VII concludes.

II. What do We know about the Evolution of Global and Regional Business Cycles?

What are the implications of increasing trade and financial integration for the evolution of global and regional business cycles? This section provides a brief review of theoretical and empirical studies focusing on this question. We start with a summary of the basic predictions of theory with respect to the implications of integration on business cycle synchronization. Next, we discuss the results of empirical studies analyzing the linkages between integration and synchronization. We conclude with a short summary of the research program on the importance of global and regional factors in explaining business cycles.

Our brief review highlights the three major findings of this literature. First, theoretical studies are inconclusive about the effects of integration on the degree of synchronization of business cycles. Second, most empirical studies suggest that trade integration has a positive impact on synchronization, but the role of financial integration in driving business cycles is still an open question. Third, while there is an extensive literature about regional dimensions of business cycles, these studies fail to provide a clear conclusion with respect to the evolution of these cycles. Differences in country coverage, sample periods, aggregation methods used to create country groups, and econometric methods employed appear to lead to diverse conclusions about the temporal evolution of synchronization. Our review also shows that there has been no comprehensive study analyzing the evolution of global and regional cycles using a large sample of countries and regions over a long time period.

Theoretical Implications . There is no consistent theoretical prediction across different models about how trade and financial integration should affect the degree of synchronization of business cycles. For example, international trade linkages generate both demand and supply-side spillovers across countries. Through these types of spillover effects, stronger trade linkages can result in more highly correlated business cycles. Increased intra-industry trade and vertical specialization could further amplify these spillover effects.

However, both classical and “new” trade theories imply that increased trade linkages also lead to increased specialization. The impact of increased specialization on the degree of comovement depends on the nature of specialization (intra- vs. inter-industry) and the types of shocks (common vs. country-specific). If stronger trade linkages are associated with increased interindustry specialization across countries, then the impact of increased trade depends on the nature of shocks. If industry-specific shocks are more important in driving business cycles, then business cycle comovement is expected to decrease ( Krugman, 1993 ). If common shocks are more dominant than industry-specific ones, then this would lead to a higher degree of comovement ( Frankel and Rose, 1998 ).

The impact of increased financial flows on the synchronization of business cycles is also ambiguous in theory. By generating large demand-side effects, financial linkages could result in a higher degree of synchronization of output fluctuations. Contagion effects that are transmitted through financial linkages could also result in heightened cross-country spillovers of macroeconomic fluctuations ( Claessens and Forbes, 2001 ).

However, international financial linkages could also stimulate specialization of production through the reallocation of capital in a manner consistent with countries’ comparative advantage in the production of different goods ( Kalemli-Ozcan and others, 2001 ). Such specialization of production, which could result in more exposure to industry- or country-specific shocks, could lead to lower business cycle correlations. More generally, financial integration, by helping countries to diversify away country-specific risk associated with consumption fluctuations, should result in stronger comovement of consumption fluctuations across countries. The impact of financial integration also depends on the nature of financial flows: equity flows appear to reduce the degree of comovement while debt flows tend to increase it ( Davis, 2011 ).

Empirical Implications . A number of empirical studies find that trade linkages have a positive impact on the synchronization of business cycles suggesting that the traditional demand and supply spillovers dominate the effects of specialization associated with inter-industry trade flows ( Frankel and Rose, 1998 ; Kose, and Yi, 2006 ). Trade intensity also has a larger effect on crosscountry business cycle correlations in countries with stronger intra-industry trade linkages and more similar sectoral structures ( Imbs, 2004 ; Calderon, Chong, and Stein, 2007 ). Moreover, some studies document that regional trade agreements, such as NAFTA, tend to have a positive impact on comovement (Calderon, 2003; Bejan, 2011 ).

Empirical studies report mixed findings on the impact of financial flows on the degree of business cycle comovement. For example, Imbs (2006) reports that financial integration leads to higher output and consumption correlations in advanced countries. This effect appears to be much smaller in the case of developing countries ( Kose, Prasad, and Terrones, 2003 ). Jansen and Stokman (2004) find that countries with stronger FDI linkages have more correlated business cycles in the second half of the 1990s whereas Kalemli-Ozcan, Papaioannou, and Peydro (2011) report a strong negative effect of banking integration on the degree of output synchronization.

Research has been unable to provide a concrete explanation about the evolution of comovement properties of the main macroeconomic aggregates over time in response to changes in the volume of trade and financial flows. Some of these studies find evidence of declining output correlations among industrial economies over the last three decades. For example, Heathcote and Perri (2004) document that the correlations of output, consumption, and investment between the United States and an aggregate of Europe, Canada, and Japan are lower in the period 1986–2000 than in 1972–85. 6

However, other studies document that business cycle linkages have become stronger over time. Kose, Otrok, and Whiteman (2008) , for example, employ a dynamic factor model to analyze the evolution of comovement across the G-7 countries. They document that the common factor on average explains a larger fraction of output, consumption, and investment volatility in the 1986–2003 period than that in 1960–72. They interpret this result as an indication of increasing degree of business cycle synchronization in the age of globalization. Using a longer sample of annual data, Artis and others (2011b) and Bordo and Helbling (2011) also document that the degree of synchronization across advanced countries has increased over time.

Regional Business Cycles . The quantitative importance of region-specific factors in explaining the degree of business cycle synchronization has been an area of intensive study. Although this research program has utilized a variety of methodologies (cross-section and panel regressions, VAR, FAVAR and dynamics factor models), the results have been far from conclusive. We briefly survey a select set of studies focusing on different regions here. We present a summary of a number of empirical studies on the synchronization of business cycles in different regions in Appendix II .

Research on the existence of a common European business cycle has produced inconclusive results ( De Haan, Inklaar, Jong-a-Pin, 2008 ; Giannone, Lenza, and Reichlin, 2010 ). Artis and Zhang (1997) , Bergman and others (1998) , Lumsdaine, and Prasad (2003) and Artis, Krolzig, and Toro (2004) analyze the implications of integration for the synchronization of business cycles in the advanced European countries and confirm the presence of a region specific cycle. However, Artis (2003) , Canova, Ciccarelli, Ortega (2007) , and Camacho, Perez-Quiros, and Saiz (2008) argue that the empirical evidence does not support a specific European cycle since the 1990s.

Some studies suggest that the rapid increase in intra-regional trade flows appears to be a major driving force of the high degree of synchronization of business cycles in various regions. For example, the North American Free Trade Agreement (NAFTA) has been associated with a substantial increase in the degree of business cycle synchronization between Canada, Mexico, and the United States ( Bergman and others, 1998 ; Kose, Meredith, and Towe, 2005 ). 7 Moneta, and Rüffer (2009) find evidence of increased synchronization in East Asia. With respect to other regions, Balcilara and Danjub (2010) and Hakura (2009) find regional factors play a minor role in MENA while Kose and Rebucci (2005) and Aiolfi, Catao, and Timmermann (2011) report the growing importance of the regional factors in explaining the degree of output comovement across Central American and Latin American countries, respectively. In related research, Tapsoba (2010) finds that intra-regional trade flows have led to enhanced business cycle comovement in Africa.

Recent research also considers the importance of global and regional (or group) specific factors in explaining business cycles with the help of dynamic factor models involving multiple regions. 8 Kose, Otrok, and Whiteman (2003) document that there is a significant global factor accounting for national business cycles, but regional factors appear to play smaller roles in a sample of 60 countries and 7 regions over the period 1960–90. Helbling and others (2007) extend this study to 93 countries with different regional configurations and analyze the 1960–2005 period. They document that the regional factors have become more important over time. Karagedikli and Thorsrud (2012) document that regional demand and supply shocks play important roles in explaining national business cycles using a FAVAR model. Mumtaz, Simonelli, and Surico (2011) use a dynamic factor model and report that while the importance of the global factor has declined, regional cycles have become more pronounced over time. There has been a recent debate on the ability of emerging market economies, especially emerging countries in the Asia-Pacific region, to decouple from a potential slowdown in advanced countries ( Helbling and others, 2007) . Kose, Otrok, and Prasad (2012) find that there has been some convergence of business cycle fluctuations among the group of advanced economies and among the group of emerging market economies while there has been a concomitant decline in the relative importance of the global factor. They argue that these results partly suggest that there has indeed been a decoupling of business cycles between the advanced and emerging market economies. 9

III. Database and Methodology

We introduce the dataset and econometric methodology we employ in this section. Our dataset covers a large number of countries and regions in order to truly account for the evolution of global and regional business cycles. We use a dynamic factor model to be able to capture various sources (global, regional and national) of business cycle fluctuations and explain the evolution of dynamic interactions across different macroeconomic variables in the context of a large dataset.

A. Database

Our database includes 106 countries partitioned into seven regions: North America (NA), Europe, Oceania, Asia, Latin America and the Caribbean (LAC), Middle East and North Africa (MENA), and Sub-Saharan Africa (SSA). The groupings of countries by region are especially useful to identify a “regional factor” given countries that are geographically close to each other are likely to be affected by similar types of (region-specific) shocks.

The primary source of our data series is the World Bank’s World Development Indicators . The database comprises annual data over the period 1960–2010. Real GDP, real private consumption, and real fixed investment correspond to the measures of national output, consumption, and investment, respectively. Using multiple macroeconomic aggregates, rather than just output, allows us to derive more robust measures of global, regional and national business cycles. All variables are measured at constant national prices. We compute the growth rates and remove the mean from each series. Appendix I shows the distribution of countries across seven regions.

In order to examine how global and regional cycles have evolved over time, we divide our sample into two distinct periods—the pre-globalization period (1960–84) and the globalization period (1985–2010). In addition to having roughly equal number of observations in each sub-period, there are three reasons for this demarcation. First, global trade and financial flows have increased markedly since the mid-1980s. 10 In addition, regional economic linkages have become much stronger during the second period as evidenced by the rapid increase in regional trade agreements as discussed earlier.

Second, after a period of stable growth during the 1960s, the first period witnessed a set of common shocks associated with large fluctuations in the price of oil in the 1970s and synchronized contractionary monetary policies in the major industrial economies in the early 1980s. This demarcation is essential for differentiating the impact of these common shocks from that of globalization on the degree of business cycle comovement. Third, the beginning of the globalization period coincides with a structural decline in the volatility of business cycles in both advanced and developing countries until the financial crisis of 2008–09. 11

B. Econometric Model

We employ a dynamic factor model to study the evolution of global and regional business cycles over time. Dynamic factor models have recently become a popular econometric tool for quantifying the degree of comovement among macroeconomic time series as some new estimation methods have been developed to perform factor analysis in large datasets. 12 The motivation underlying these models is that the covariance or comovement between (observable) macroeconomic time series across countries is the result of a relationship between these variables and a small number of unobservable common factors, which can be thought of as the main forces driving economic activity. These factors can capture common fluctuations across the entire dataset (i.e., the world) or across subsets of the data (i.e., regions). 13 Dynamic factor models are particularly useful for characterizing the degree and evolution of synchronization in various dimensions without making strong identifying assumptions to disentangle different types of common shocks.

In addition, factor models have the advantage that they are motivated by DSGE models, as was first noted by Sargent (1989) for a general equilibrium model. Recent research on international business cycles shows that one can view the dynamic factor model we employ as a reduced-form solution of a standard open-economy DSGE model as the data generated from that model has a representation of a dynamic factor model ( Crucini, Kose, and Otrok, 2011) . The typical DSGE model suffers from the curse of dimensionality, limiting the number of shocks and number of driving variables that can be analyzed using such models. The advantages of the dynamic factor model employed here are that it is parsimonious and allows one to consider larger, more interesting datasets than if one was estimating a multi-country DSGE model.

Our dynamic factor model features: (i) a global factor common to all variables (and all countries) in the system; (ii) a factor common to each region; (iii) a country factor common to all variables in each country; and (iv) an idiosyncratic component for each series of each country. Since our primary interest is in comovement across all variables in all countries (or regions), we do not include separate factors for each of the macroeconomic aggregates (including factors in yet another dimension would also make the model intractable for the large number of countries we study). The dynamic relationships in the model are captured by modeling each factor and idiosyncratic component as an autoregressive process.

Specifically, let Y t i,j,k denote the growth rate of the i th observable variable in the j th country of region k. We have three variables (output, consumption and investment) per country (indexed by i ), seven regions (indexed by k ), and 106 countries (indexed by j ). The model can then be written as:

where ϕ i,j,k (L) and ϕ m (L) are lag polynomial operators, v t i,j,k are distributed N ( 0 , σ i,j,k 2 ) , μ t m are distributed N ( 0 , σ m 2 ) , and the innovation terms μ t m and v t i,j,k are mutually orthogonal across all equations and variables in the system. The β parameters are called factor loadings and capture the sensitivity of each observable variable to the latent factors (denoted by f t m ; we have a total of 114 factors (1 global factor + 7 regional factors + 106 country factors) indexed by m ). For each variable, the estimated factor loadings quantify the extent to which that variable moves with the global factor, the regional factor, and the country-specific factor, respectively. The lag polynomials can in principle be of different order; however, for simplicity and parsimony, we restrict them to be AR(3) for each factor and idiosyncratic term. Since we are using annual data, this should capture most spillovers, either contemporaneous or lagged, across variables and countries.

The model is estimated using Bayesian techniques as described in Kose, Otrok, and Whiteman (2003) and Otrok and Whiteman (1998) . There are two related identification problems in the estimation of the model given by equations (1) – (3) : neither the signs nor the scales of the factors and the factor loadings are separately identified. We identify the signs by requiring one of the factor loadings to be positive for each of the factors. In particular, we impose the conditions that the factor loading for the global factor is positive for U.S. output; that country factors have positive factor loadings for the output of each country; and factors for each region have positive loadings for the output of the first country listed in each region in Appendix I . 14 Following Sargent and Sims (1977) and Stock and Watson (1989) , we identify the scales by assuming that each σ m 2 equals a constant. The constant is chosen based on the scale of the data, so that the innovation variance is equal to the average innovation variance of a set of univariate autoregressions on each time series. The results are not sensitive to this normalization. 15

There is a rich literature on large dynamic factor models that is closely related to our work (e.g., Forni, Hallin, Lippi, and Reichlin, 2000 ; Stock and Watson, 2002 ; Doz, Giannone, and Reichlin, 2008 ). Our approach is related to this literature, but a virtue of our methodology is that we can easily employ a factor structure where there are simultaneously estimated factors using large and small cross-sections of the data without relying on asymptotics. In our parametric approach, we can estimate factors for small cross-sections of the data (e.g., individual countries) conditional on larger cross-sections (i.e., global and regional factors).

C. Variance Decompositions

To measure the importance of each factor for explaining the volatility of macroeconomic aggregates, variance decompositions are calculated. The formula for the variance decomposition is derived by applying the variance operator to each equation in the system. This provides an empirical assessment of how much of a country’s business cycle fluctuations are associated with global fluctuations or fluctuations among countries in each region. We estimate the share of the variance of each macroeconomic variable attributable to each of the three factors and the idiosyncratic component. With orthogonal factors, the variance of the growth rate of the observable quantity Y t i,j,k can be written as follows:

Then, the fraction of volatility due to, say, the regional factor k would be:

These measures are calculated at each pass of the Markov chain; dispersion in their posterior distributions reflects uncertainty regarding their magnitudes.

IV. How Important are Regional Cycles (1960–2010)?

Before analyzing the evolution of global and regional business cycles over time, we first consider the sources of business cycle fluctuations over the full sample period. As a summary measure of the importance of the factors, we present the average variance shares (within the relevant regions of countries) attributable to each factor for the world and seven regions defined earlier. We do not report standard errors for these cross-country averages, but will do so later when we look at individual country results. 16 As we discussed in Section II , most of the literature on regional business cycles have studied output as the main indicator of cyclical activity. We also consider the sources of cycles in consumption and investment.

We briefly summarize the major results from the analysis of variance decompositions for the period 1960–2010. First, the global factor plays an important role in explaining business cycles implying that there exists a world business cycle. Second, regional factors are also significant drivers of business cycles. The regional factor on average accounts for a slightly larger share of variance of output and investment than does the global factor. Regional cycles tend to be more pronounced especially in regions with relatively stronger intra-regional trade and financial linkages. As discussed in the next section, this result is mainly driven by the emergence of the regional cycles in the second sub-period (1985–2010). Third, the average degree of synchronization of business cycles in individual countries with the rest of the world, measured by the sum of the variance shares explained by the global and regional factors, is quite high. In addition, a larger fraction of output variation is captured by the global and regional factors than that of consumption variation implying that there are still unexploited global and regional risk-sharing opportunities.

A. Global and Regional Cycles

How important is the global business cycle? As Table 1 shows, the global factor explains a significant fraction of business cycle fluctuations in all three macroeconomic variables over the period 1960–2010, implying that there is indeed a sizeable world business cycle. The global factor on average accounts for 10 percent of output growth variation among all countries in the sample. It also explains roughly 9 percent and 5 percent of the volatility of growth rates of consumption and investment, respectively. Although the variance shares attributed to the global factor appear to be small at first sight, it is important to remember that the global (common) factor across the three macroeconomic aggregates is for a very large and diverse set of countries.

Variance Decompositions (1960–2010)

The global factor tends to be important in each region, but on average it plays a more dominant role in explaining business cycles in advanced country regions (North America and Europe) with stronger intra-regional trade and financial linkages than those regions with emerging market and developing economies (Asia, LAC, SSA, and MENA). The global factor on average explains about 17 (27) percent of output fluctuations in North America (Europe). In contrast, in the latter group of regions, the global factor explains between 5 percent (in SSA) to 9 percent (in Asia) of output fluctuations. The global factor is also associated with a substantial share of the variance in consumption and investment growth among regions of advanced countries, accounting on average for about 25 percent and 12 percent of the total variance of these variables, respectively. These shares are also much larger than the corresponding numbers for other regions.

How important are regional cycles ? The results indicate that the regional factor on average plays a slightly more important role than the global factor in explaining output fluctuations. Table 1 shows that the regional factor accounts for about 13 percent of output growth fluctuations in the full sample. The fraction of output variance explained by the regional factor is larger than that of the global factor in three of the seven regions. The regional factor, like the global factor, tends to be more important for advanced country regions. On average, it accounts for about 34 percent and 22 percent of output growth fluctuations in North America and Europe, respectively. While the regional factor explains a relatively smaller share of variance of output for Oceania, SSA and MENA, it explains a significant part of variation for Asia and LAC.

The regional factor also appears to be a major driver of business cycles in consumption and investment. While it accounts for only a slightly small share of consumption variation than does the global factor, its contribution to investment volatility is two times larger than that of the global factor. In six out of the seven regions, the regional factor is more important than the global one in explaining the volatility of consumption and investment.

We also examine the overall synchronization of global business cycles by using the sum of the variance contributions of the global and regional factors. The rankings of different regions remain much the same, although the magnitudes are of course larger. Among North America and Europe, the total contribution of these two factors averages between 48 and 50 percent for output, 34 and 45 percent for consumption, and 35 and 40 percent for investment. For other regions, the average for output variance is between 7 percent (for SSA) and 30 percent (for Asia).

Our results also indicate that the factor loadings associated with output and consumption growth on the global factor are positive for 70 percent and 83 percent of countries, respectively (i.e., the posterior distributions of the factor loadings have very little mass in symmetric intervals about zero). These findings imply that positive developments in the U.S. economy are generally associated with higher growth in the rest of the world since the global factor is identified by a positive factor loading for U.S. output growth.

B. Country-Specific Cycles

We next turn our attention to the roles played by country and idiosyncratic factors in explaining business cycles. Both of these play important roles in driving business cycles around the world ( Table 1 ). The country factor is on average more important in explaining output variation than is the idiosyncratic factor (41 percent vs. 34 percent), but the reverse is true for fluctuations in consumption (34 percent vs. 48 percent) and investment (27 percent vs. 56 percent). Given that consumption and investment series tend to have larger measurement problems than those of output, it is normal that fluctuations in consumption and investment exhibit larger idiosyncratic components.

With respect to different regions, the results indicate that as countries get more exposed to global trade and financial flows and establish stronger intra-regional economic linkages, the global and region-specific factors increasingly become more relevant in explaining national business cycles at the expense of the country and idiosyncratic factors. For example, country and idiosyncratic factors together explain about 50 percent of output variation in North America and Europe, but their share is on average more than 80 percent in five other regions.

How different are the factors explaining fluctuations in output and consumption? The total contribution of the global and regional factors is greater for output than for consumption for the sample as a whole and also for each region. Indeed, Figure 1 shows that this is true even when we look at the global and regional factors by themselves. This implies that, on average, country-specific and idiosyncratic factors play a more important role in explaining consumption fluctuations than in the case for output fluctuations. This result is very similar to a well-known stylized fact in the literature that, contrary to the predictions of conventional theoretical models of international business cycles, output is more highly correlated across countries than consumption ( Backus, Kehoe, and Kydland (1995) refer to this as the “quantity anomaly”).

Average Variance Explained by Global and Regional Factors (1960–2010)

Citation: IMF Working Papers 2013, 019; 10.5089/9781557753281.001.A001

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As one would expect, the contribution of the idiosyncratic factor in regions populated with relatively less developed countries is greater than that of any other factor. This is true for all variables, but especially so for investment, where on average the idiosyncratic factor accounts for 79 percent of fluctuations in SSA and 57 percent of fluctuations in MENA. This result implies that investment fluctuations in these regions do not appear to be influenced much by either national or global business cycles.

C. Global, Regional, and Country Factors

We also study the temporal evolution of the global, regional and country factors. These factors are able to capture the main cyclical episodes of the past fifty years. For example, the estimated global factor closely matches the major peaks and troughs observed in the global business cycle, including the recessions in 1974–75, the early 1980s, the early 1990s, the slowdown in the early 2000s, and the recent global recession. 17 Moreover, there is considerable overlap in the evolution of the global factor and U.S. growth, especially during U.S. recessions.

Regional factors also reflect some of the major region specific episodes. For example, the Asian regional factor captures the Asian financial crisis, the LAC factor is consistent with the debt crisis of the early 1980s, and the North American and European factors exhibit the sharp contraction associated with the global financial crisis of 2008–09. We also examine relationships among the global factor, regional factors, country factors, and output in some select countries. These factors play different roles at different points in time and around the globe. In some episodes, the country factor is more strongly reflective of domestic economic activity, while in others the domestic growth appears to be influenced by movements in the global and/or regional factors.

Do global business cycles exhibit more persistent behavior than do the regional and national cycles? In order to measure persistence of cycles, we calculate the first-order autocorrelation of each factor. The global factor has large and positive autocorrelation (0.60), and compared to the autocorrelations of the regional factors and most of the country factors, it is much more persistent. The average persistence is about 0.20 for regional factors while it is around 0.10 for country factors. These results suggest that the global factor accounts for most of the persistent (or low frequency) comovement across countries whereas the global and regional factors appear to be responsible for the higher frequency comovement. 18

V. Business Cycles: Regionalization or Globalization? (1960–84 and 1985–2010)

We have briefly documented in our introduction that there has been a dramatic increase in global trade and financial flows over the past 25 years. This period has also witnessed a rapid growth of intra-regional trade and financial linkages in some regions. In light of these observations, it is natural to study the evolution of the roles played by the global and regional factors in explaining business cycles over time. We estimate our dynamic factor model over two periods, 1960–84 and 1985–2010, for this purpose. As we have already discussed in Section II , there are a number of good reasons justifying the selection of these two sub-periods.

By estimating the model over two sub-periods, we allow the model parameters, such as the factor loadings and those that determine the structure of propagation of shocks, to vary across time. This naturally yields a different variance decomposition for each sub-period. It is important to note that the estimate of the global factor itself is similar whether it is estimated over the full sample or over sub-samples. This is not surprising as the index of common activity in a period should not be affected by data many periods away ( Stock and Watson, 2009 ).

In this section, we first analyze the evolution of the importance of various factors in explaining output variation over time. Next, we consider how the global and regional cycles in consumption and investment have evolved over time. Before delving into the details, we briefly summarize the major results of this section. First, the results suggest that the global factor on average has played a significant role during the full sample, but its role has become less important in the second period. Second, regional factors have become more influential in explaining business cycles over time. These factors account for a much larger variation of business cycle volatility especially in regions where intra-regional trade and financial linkages have increased substantially during the second sub-period. Our findings indicate that while both global and regional factors are significant drivers of business cycles, regional factors increasingly play a more important role.

A. Evolution of Global and Regional Cycles

Tables 2 – 3 show the variance decompositions based on models estimated separately for the pre-globalization (1960–84) and globalization (1985–2010) periods, respectively. A number of commentators argue that because of the forces of globalization, national business cycles should have become more synchronized over time. Contrary to these popular arguments, the average contribution of the global factor to output fluctuations registers a sizeable decline in the second sub-period, from 13 percent to 9 percent for the full sample of countries. The same pattern holds for consumption fluctuations while the importance of the global factor registers a slight increase in fluctuations in investment ( Figure 2 ).

Variance Decompositions (1960–84)

Variance Decompositions (1985–2010)

Variance Explained by Global Factor

These patterns also hold up and are in fact stronger in most cases when we evaluate the variance decompositions of output fluctuations for different regions ( Figure 2 ). The global factor appears to play a smaller role in explaining business cycles in the second sub-period in all regions except North America and Oceania. The share of the variance of output due to the global factor increases from 22 (12) percent to 30 (21) percent in North America (Oceania) in the second period.

In contrast, the regional factor has on average played an increasingly more dominant role in explaining business cycles over time ( Tables 2 – 3 and Figure 3 ). For example, the average share of the variance of output attributed to the regional factor has risen from 11 percent to 19 percent during the second period. These patterns are particularly strong among the following regions: North America, Europe, Oceania, and Asia regions. In particular, in the second sub-period, the regional factor has accounted for roughly one-third of output fluctuations in North America and Asia, and 40 percent in Europe, 20 percent in Oceania. In a similar fashion, the regional factor for SSA and MENA has played a more important role in the second period, but the increase in the variance share of output attributed to the regional factor is much smaller in these regions. In LAC, the importance of the regional factor does not change much over the two sub-periods.

Variance Explained by Regional Factors

How can we explain these results? It is useful to answer this question in two steps. First, the decline in the importance of the global factor supports the interpretation that the strong business cycle synchronization observed during the 1970s and early 1980s reflected large common disturbances—the two oil price shocks—and the effects of correlated disturbances in the major advanced countries, notably the disinflationary monetary policy stance in the early 1980s. Although the latest financial crisis can also be seen as a massive global shock, its full impact on our variance decompositions has probably yet to be fully realized (as we have only three years of observations associated with the crisis). 19 Moreover, as we indicated in our introduction, there was substantial variation in the performance of different regions during the latest crisis. These developments have collectively led to an overall decline in the importance of the global factor in explaining business cycles during the globalization period.

Second, there has been on average an increase in the importance of regional factors. In particular, regional linkages have become much more significant in regions where intra-regional trade and financial flows have increased substantially after the mid-1980s (North America, Europe, Oceania, and Asia). These regions have undertaken substantial steps to strengthen regional economic linkages during the second sub-period. For example, intra-regional trade and financial linkages have registered significant growth over the past quarter century in the North American region where the process of economic integration started in the mid-1980s and culminated with the ratification of the NAFTA in 1994. 20 During the past decade, intra-regional trade flows accounted for nearly 55 percent of total trade while intra-regional financial assets were about 20 percent of total assets in the North American region. 21

One of the greatest regional integration projects of history took place in Europe with the eventual establishment of the European Union and creation of euro area. Intra-regional trade flows have constituted roughly 75 percent of total trade in Europe during the past decade. Intra-regional asset holdings went up from 55 percent to roughly 75 percent of total assets in Europe over the same period.

Regional integration in Asia has been mainly driven by the ASEAN (Association of South East Asian Nations) and complemented by a number of bilateral regional arrangements ( Plummer, 2006 ). The region has seen a rapid increase in intra-regional trade and financial flows especially over the past decade. The share of intra-regional trade flows was around 55 percent over the past decade while intra-regional asset holdings increased to more than 5 percent of total assets. In the case of Oceania, the Australia-New Zealand Closer Economic Relations Agreement in 1983 marked the beginning of a period of rapid growth in intra-regional trade and financial linkages (Gonuguntla, 2010). 22

The nature of trade has also changed in these four regions over time. One of the major driving forces of the rapid growth in regional trade flows has been the acceleration of intra-industry trade. The surge in intra-industry trade linkages has been associated with vertical specialization of trade ( Yi, 2003 ; De Backer and Yamano, 2007 ) which is associated with a higher degree of business cycle synchronization ( di Giovanni and Levchenko, 2010 ; Ng, 2010 ). Moreover, during the second sub-period, countries in these regions have increased the pace of diversification of their industrial (and trade) bases. This has been accompanied by a greater degree of sectoral similarity across countries within regions further contributing to the increase in the degree of business cycle synchronization ( Imbs, 2004 ; Kose and Prasad, 2010 ).

The evolution of global and regional cycles is of course affected by various types of shocks, in addition to increased trade and financial integration. For example, common shocks, such as abrupt, unexpected changes in commodity prices or sharp fluctuations in asset prices in the major financial centers, can lead to a higher degree of synchronization of global or regional business cycles. Both the global and regional cycles can also be affected by cross-border spillovers of disturbances originating in a large economy. Moreover, global and regional business cycles can emerge simply because of correlated shocks, such as shocks associated with the implementation of similar policies. It is easy to see how these types of shocks have been influential in some of the regions that have experienced more pronounced regional cycles. For example, while the implementation of similar policies has contributed greatly to the convergence of national cycles in Europe over the period 1985–2010, cross-border spillovers originating in the United States and China have probably been important in explaining regional cycles in North America and Asia, respectively.

Not surprisingly, the importance of regional factors in explaining business cycles in less developed regions, such as SSA and MENA, which are also the regions relatively less exposed to the forces of globalization, has registered only a slight increase between the two periods. In LAC, the importance of the regional factor does not change much over the two sub-periods. This could reflect the region specific developments, such as the buildup in external debt, the subsequent debt crises in the early 1980s, and regional contagion following the financial crisis of the 1990s and early 2000s.

The total contribution of global and regional factors together to output fluctuations has, on average, has recorded a small increase from 24 percent in the first sub-period to 29 percent in the second sub-period ( Figure 4 ). This is of course the consequence of a substantial increase in the relative importance of the regional factor. Since the total contribution of global and regional factors is a measure of the extent of co-movement across national business cycles, these results show that while there is some evidence implying that business cycles have become more synchronized over time, the increase in the change of variance explained by the global and regional factors is relatively small. However, as we present in Section VI , this small increase is entirely driven by the period of highly synchronized cyclical activity due to the global financial crisis of 2008–09.

Variance Explained by Global and Regional Factors

How do our findings compare with the results in the literature? Most of the earlier studies have typically focused on just output or industrial production fluctuations and limited their analysis to specific regions. However, as we briefly discuss in Section II , these studies often report conflicting results. For example, some recent papers document that there is a distinct European business cycle while others argue the opposite ( De Haan, Inklaar, Jong-a-Pin, 2008 ). 23 Other studies find regional cycles specific to East Asia and North America. Some of these studies resort to simple correlations (over much shorter time-periods and smaller samples than ours here) and report that business cycles within certain regions have become more correlated over time. Most of the studies are unable to properly account for the extent of regional business cycle comovement since they mostly rely on bilateral correlations, which are fraught with a number of problems. For example, deriving summary correlation measures from large datasets requires one to take averages across the estimated correlations, a procedure that can mask the presence of comovement across a subset of the data. One way to reduce the number of bivariate correlations is to specify a country or weighted aggregate to serve as the reference against which other countries’ correlations are computed. However, changes in the reference country/aggregate often lead to significantly different results. Such weighting schemes also inevitably give rise to questions about the weights and concerns that a large county may dominate the global/regional business cycle by virtue of its size when, in fact, that country may be disengaged from other countries. Moreover, static correlations cannot capture the dynamic properties of the data, such as autocorrelations and cross-autocorrelations across variables.

Factor models obviate these problems. They do not require one to average across variables or define a “numeraire” country. Instead, they identify the common component and, at the same time, detect how each country responds to that component. More importantly, factor models are flexible enough that multiple factors can be specified in a parsimonious way to capture the extent of synchronicity across the entire dataset as well as the synchronicity specific to subsets of the data, such as regions. Furthermore, since the factors are extracted simultaneously, we can assign a degree of relative importance to each type of factor.

Our findings are consistent with the results reported by studies that employ dynamic factor models. For example, Karagedikli and Thorsrud (2012) and Mumtaz, Simonelli, and Surico (2011) also report that regional business cycles have become more pronounced over time. We focus on a much larger dataset than these studies do. 24 Our large dataset, which allows us to consider the synchronization of cycles in many regions, our long sample, which covers a substantial period of the recent era of globalization, and our demarcation of the pre-globalization and globalization periods are essential in enabling us to identify the emergence of regional cycles during the second sub-period. 25

B. Synchronization of Cycles in Consumption and Investment

We next assess the evolution of variance shares attributable to different factors in explaining consumption and investment fluctuations. For the world as a whole, the increase in the variance contribution of regional factors to consumption fluctuations is on average about 6 percentage points (from 8 percent to 14 percent), but the joint share of the global and region-specific factors has not changed much ( Tables 2 – 3 ). For the North American, European, Oceanian, and Asian regions, the two common factors jointly account for a substantially higher share of consumption fluctuations in the second sub-period whereas, for SSA and LAC, the share of these factors has on average declined over time. The share of consumption variation due to the country and idiosyncratic factors is much smaller in North America, Europe and Oceania than those of others. In particular, the average variance of consumption explained by these two factors is about 54 percent in these three regions, but it is 83 percent in the other four regions.

These findings indicate that the three regions populated mostly by advanced countries have been able to use globalization relatively more effectively to share national consumption risk. In addition to their relatively more advanced levels of financial development, these regions are more exposed to global trade and financial linkages in the second sub-period. These results are confirmed by some recent studies as well ( Sorensen, Wu, and Zhu, 2007 ; Kose, Prasad, and Terrones, 2009 ). On the other hand, regions with relatively less developed domestic financial markets and with less exposure to cross-border linkages are probably at earlier stages of utilizing this benefit of globalization as their consumption fluctuations are still closely tied to national cycles.

The share of investment variance attributable to the global and regional factors increases for the world and for all the regions in the second sub-period. The variance of investment growth due to the global and regional factors rises from 16 percent in the first sub-period to 24 percent in the second sub-period for the full sample. These two factors on average account for 51 percent of investment variation in North America, Europe and Oceania and 16 percent in the other four regions in the second sub-period. One interpretation of this finding is that fluctuations in investment have been becoming more synchronized over time, especially in regions with more pronounced global and intra-regional linkages.

However, these findings imply different outcomes than those offered by the predictions of standard international business cycle models. The basic theory implies that stronger trade and financial linkages translate into lower investment correlations across countries. Specifically, when restrictions on capital and current account transactions are relaxed in these models, capital and other resources rapidly move to countries with more favorable technology shocks because of the standard “resource shifting” effect in standard business cycle models (see Backus and others, 1995 ; Ravn and Mazzenga, 2004 ; and Heathcote and Perri, 2002 ). 26

The results with respect to the synchronization of consumption and investment fluctuations suggest that the data paint a different picture than do the standard business cycle models. In particular, the forces of globalization have not translated into an increase in the degree of risk sharing achieved by all of the regions in our sample as would be expected on the basis of standard models. In addition, contrary to the predictions of these models, the importance of global and regional factors for investment fluctuations has risen during the period of globalization, implying a higher degree of cross-country comovement of fluctuations in this variable.

VI. Sensitivity Experiments

We now analyze the robustness of our main findings considering a variety of sensitivity experiments. Specifically, we conduct four types of experiments to address the following issues: the correspondence between the aggregate results and those at the country level; implications of alternative break points and changes in the composition of regions; effects of crises; and the dynamic relationship between the global factor and observable variables. We discuss below the results of each of these experiments in turn.

A. Country-Specific Results

Do the averages we presented so far accurately reflect the sources of business cycle variation at the country level? In order to address this question, we examine the relative contributions of global and regional factors to each of the macroeconomic variables for each country. Figures 5 – 6 present the relative contributions of the global and regional factors to output fluctuations in individual countries in four regions: North America, Europe, Asia and Oceania. These regions are especially interesting cases as they experience a substantial increase in the importance of the regional factor in the second period. Moreover, the global factor becomes less influential in all of these regions except North America. We present the contributions of the global and regional factors separately for the two sub-periods. We also show the posterior coverage intervals (of length two standard deviations) around the posterior means of the estimated variance contributions. Non-overlapping posterior coverage intervals indicate statistically significant changes between the two periods.

Output Variance Explained by Global Factor North America and Europe

Output Variance Explained by Regional Factor North America and Europe

The variance contribution of the global factor drops from the first period to the second for 16 countries, remains unchanged for 16 others, and increases for only 7 countries, for North America, Europe, Asia and Oceania. In the case of North America, the global factor becomes more important in the United States, but it does not become significantly more influential in Canada and Mexico. When we examine the importance of the regional factor over time, we observe a different pattern: it goes up for 27 countries, stays unchanged for 8, and declines for 4 for these four regions.

These patterns are quite similar when we look at the three other regions as well, with the relative importance of the global factor going up for only 12 countries but declining for 27 of them. The relative importance of the regional factor, by contrast, rises for 23 and falls for 15 countries. There is no significant change in the share explained by the global or regional factors in other countries. For the world as a whole, the share of the global factor rises in the second sub-period in 21 countries, remains unchanged in 42 countries, and declines in 43 countries. For the world as a whole, the share of the regional factor rises in the second sub-period in 50 countries, remains unchanged in 37 countries, and declines in 19 countries. These findings indicate that our headline results with respect to the evolution of the importance of the global and regional factors over time are confirmed by the country-specific analysis. 27

B. Demarcation of Time and Configuration of Regions

We next analyze the robustness of our results to alternative break points in the sample and changes in configurations of regions. In Section III , we have already discussed a variety of reasons why 1985 is a logical break point to analyze the evolutionary changes in the roles played by global and regional factors in explaining business cycles. We also estimated the model for alternative sample periods using 1983 and 1987 as break points. The results for these sub-samples lead to qualitatively similar conclusions ( Table 4 ). In addition, the individual variance decomposition patterns documented in Figures 5 – 6 remain essentially the same, confirming that our results do not hinge on the exact break date. 28

Variance Decompositions for the World (Different Breaks)

We also analyze how our main results change in response to variations in the country composition of regions. We consider three separate experiments involving the following changes: moving Mexico from North America to the LAC region; moving Turkey from Europe to the MENA region; and moving Israel from MENA to Europe. Although these experiments slightly change the quantitative results, our qualitative findings remain intact. 29

C. Crises and Synchronization

It is natural to study whether our results are driven by crises since periods of crises often coincide with highly synchronized business cycles in regions (or groups of countries). The crises episodes can potentially bias our findings and lead to changes in the shares of variance captured by different types of factors. During the second sub-period, the most prominent widespread crises have of course been the Asian financial crisis of 1997–98, which directly affected a handful of countries in the region, and the global financial crisis of 2008–09, which led to sharp contractions in a number of advanced countries.

We undertake three experiments to study the impact of these periods. First, we exclude the four countries (Korea, Malaysia, Philippines, Thailand) directly affected by the Asian crisis from our sample and re-estimate the model. Second, we use the original model estimates and then compute the variance contributions of different factors for the Asian region excluding the crisis countries. Finally, to account for the impact of the global financial crisis, we consider two complementary experiments by excluding the last three years from the second sub-sample (2008–10) and by extending the sample to 2015 using forecasts of the data for the 2011–15 period.

The results of these experiments indicate that our headline findings are preserved. However, the last experiment suggests that the global financial crisis affects some of our other results ( Table 5 ). In particular, we reported in the previous section a small increase in the total contribution of global and regional factors together to output fluctuations in the second sub-period. This finding appears to be driven by the global financial crisis. If the second sub-period includes only the 1985–07 period, the variance share due to the global factor decreases more in the second sub-period leading to a slight decline in the total variance share of output due to the global and regional factors.

Variance Decompositions for the World (Different End Years)

We also analyze the possible effects of the global financial crisis on our results considering a longer time period. Specifically, we extend our sample by including forecasted values of the three macroeconomic variables for the period 2011–15 (these forecasts are based on the IMF’s World Economic Outlook, April 2011). The results point to similar conclusions we get from the 1985–2010 sample.

D. Dynamics of the Global Factor

Although our factor structure is dynamic, the observable variables depend on the factors only contemporaneously in the model. If the global factor has lagged effects on the observables, it is possible that our model understates the importance of the global factor. Given the dynamic nature of our factors, we think that these effects are likely to be small. Moreover, since we use annual data, the lagged effect would have to be fairly slow moving to have an impact on the results. We address the potential for lagged effects by regressing each observable variable on the global factor and two lags of the factor. The coefficients on the first lag were significant for only a small fraction of the time series we have. 30 We conclude that lagged responses are of minor importance and would not affect our main conclusions about the relative importance of the global and regional factors.

VII. Conclusion

We have analyzed the evolution of global and regional business cycles over the past five decades. Our results indicate that regional business cycles have increasingly become more pronounced especially in regions where intra-regional trade and financial linkages have registered rapid growth since the mid-1980s. In particular, the regional factor has explained a larger fraction of business cycle variation in the North American, European, Oceanian, and Asian regions over the past twenty-five years. Surprisingly, the importance of global factor has declined over time. The total contribution of common factors (global and regional) has not registered a significant change implying that there has been no change in the degree of international business cycle synchronicity during the past quarter century.

These results present a different interpretation of the impact of globalization on the synchronization of business cycles. Most commentators argue that globalization of trade and financial linkages have led to the globalization of business cycles as well. Contrary to these popular arguments, regional factors, rather than global ones, have become the driving forces of business cycles during the recent era of globalization. This has led to the emergence of regional business cycles.

A wide range of developments at the regional level can explain the emergence of regional cycles. For example, the dramatic increase in intra-regional trade and financial flows fueled by regional integration initiatives can promote a higher degree of business cycle synchronization across countries in a region. Regional business cycles can also emerge because of the prominent role of region-specific shocks driven by the implementation of similar policies in a region. Moreover, cross-border spillovers of disturbances originating in a large country in a region can translate into more synchronized national business cycles in that region.

There are a number of interesting research questions to be explored in future studies. We briefly mention three of them here. First, we documented the emergence of regional cycles and provided some intuitive arguments explaining their emergence, but it is important to go a step beyond and analyze the main driving forces of the global and regional cycles. Do we observe the emergence of regional cycles because of the growth in intra-regional trade and financial linkages, or because of the more prominent role played by region-specific shocks, including technology and policy disturbances?

The second interesting issue to explore is the evolution of financial cycles. Although financial cycles appear to be highly synchronized across countries, they do not translate into highly synchronized business cycles at the global level. What are the major factors explaining the globalization of financial cycles while business cycles have been becoming more regionalized? Third, it would be very useful to consider the policy implications of the emergence of regional cycles. As recent developments in Europe have clearly demonstrated, we need to have a better understanding of region-wide policies for the volatility of synchronization of cycles. We plan to address some of these issues in our future research.

Appendix I: List of Regions and Countries
Appendix II. Summary of Empirical Studies on Synchronization of Cycles in Different Regions

Abeysinghe , T. and K. Forbes , 2005 , “ Trade Linkages and Output-Multiplier Effects: a Structural VAR Approach with a Focus on Asia ,” Review of International Economics , Vol. 13 , No. 2 , pp. 356 – 75 .

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Hirata: Faculty of Business Administration, Hosei University and Japan Center for Economic Research; Kose: Research Department, International Monetary Fund; Otrok: Department of Economics, University of Missouri-Columbia and Federal Reserve Bank of St Louis. Earlier versions of this paper were presented at the Federal Reserve Bank of St Louis Conference on “Challenges in Open-Economy Macroeconomics after the Financial Crisis,” the CESIFO Venice Summer Institute on “Global Interdependence, Decoupling and Recoupling,” the CEPR-RIETI Conference on “International Finance and Corporate Finance: Japanese and European Perspectives,” the Spring Meetings of the Japan Economic Association, and seminars at the Bank of Japan, the Canon Institute for Global Studies, the Federal Reserve Bank of San Francisco, and UC-Berkeley. We would like to thank our discussants (Sebnem Kalemli-Ozcan, Claudia M. Buch, John Driffill, and Yosuke Takeda), Stijn Claessens, Massimiliano Marcellino, numerous colleagues, and seminar and conference participants for their useful comments. Ezgi O. Ozturk provided excellent research assistance. Hirata has received financial support for this project under the Japan Society for the Promotion of Science Grant-in-Aid for Young Scientists (B) 24730253. The views expressed in this paper are those of the authors and do not necessarily represent views and policies of the IMF or Federal Reserve Bank of St Louis.

A number of studies analyze the sources of variation in performance across different countries and regions during the global financial crisis (Blanchard, Faruqee, and Das, 2010; Lane and Milesi-Ferretti, 2011; Rose and Spiegel, 2011).

These numbers are based on the statistics from the WTO’s Regional Trade Agreements Gateway. For a detailed discussion of the evolution of preferential and regional trade agreements, see WTO (2011).

Ando (2006), Athukorala and Yamashita (2006), Clark (2002), Fullerton, Sawyer, Sprinkle (2011) present evidence for the rapid growth of intra-industry trade in Asia, North America, and the Latin America and the Caribbean.

We analyze global and regional business cycles based on a few key macroeconomic variables rather than focusing solely on output. Our approach of using multiple macroeconomic indicators rather than just GDP to characterize business cycles can be traced back to classical scholars of business cycles (Burns and Mitchell, 1946; Zarnowitz, 1992). The NBER also looks at a variety of indicators for determining turning points in U.S. business cycles, including real GDP, real income, employment, industrial production, and wholesale-retail sales.

In a related paper, Stock and Watson (2003) employ a factor-structural VAR model to analyze the importance of international factors in explaining business cycles in the G-7 countries since 1960. They conclude that comovement has fallen in the 1984–2002 period relative to 1960–83 due to diminished importance of common shocks. Results by Doyle and Faust (2005) indicate that there is no significant change in the correlations between the growth rate of output in the United States and in other G-7 countries over time.

Some empirical studies report that increased volume of intra-regional trade flows, especially in the form of intra-industry trade, has been an important factor in explaining the degree of business cycle synchronization in certain regions (for North America, see Swiston and Bayoumi, 2008; for Asia, see Shin and Wang, 2003 and 2004; Shin and Sohn, 2006; Kumakura, 2006; Rana, 2008; and Cortinhas, 2007; for Europe, see Bower and Guillemineau, 2006; and Shin and Wang, 2005). He and Liao (2010) emphasize the importance of the region specific supply factors in explaining the degree of synchronization of Asian business cycles. There also have been some studies focusing specifically on North-South business cycle linkages (Hoffmaister, Pradhan, and Samiei (1998), Kouparitsas (2001) and Akin and Kose (2008)). Hirata, Kim and Kose (2004, 2007) present stylized facts of cycles in the MENA region and analyze the sources of these cycles using a small open economy DSGE model.

Di Mauro, Dees, and Mc Kibbon (2008) present a summary of different types of factors affecting global and regional linkages.

Other studies also consider the decoupling potential of emerging economies using various methodologies (He, Cheung and Chang, 2007; Asian Development Bank, 2007; and Fidrmuc and Korhonen, 2010).

As countries have intensified their efforts to liberalize external trade and financial account regimes, there has been a dramatic increase in global trade and financial flows, both in absolute terms and relative to world income, during the globalization period (Kose and Prasad, 2010; Milesi-Ferretti, Strobbe, and Tamirisa, 2010).

For a detailed discussion of this demarcation, see Kose, Otrok, and Prasad (2012). Blanchard and Simon (2001) and Stock and Watson (2005) present evidence for the Great Moderation. We provide a set of sensitivity experiments to check the robustness of our main results to changes in this demarcation.

For explanations of these estimation approaches, see Stock and Watson (2002), Forni and others (2000), and Otrok and Whiteman (1998).

We do not interpret the factors as representing specific types of shocks such as technology—instead, we view them as capturing the effects of many types of common shocks, including technology, monetary and fiscal policies, world interest rate, and terms-of-trade shocks etc.

The sign restriction is simply a normalization that allows us to interpret the factors in an intuitive way. For instance, we normalize the factor loading for the U.S. output growth on the global factor to be positive. This implies that the global factor falls in 1974, 1981, 1992, and 2009 consistent with the fact that the United States and most other countries experienced recessions in those years.

The procedure draws the regional factor conditional on the global factor, and then the country factor conditional on the global and regional factors. This assumes an orthogonality between the global and regional factor innovations. The model assumes that the country factor innovations are orthogonal to each other. Even though the factors are uncorrelated, samples taken at each pass of the Markov chain will not be, purely because of sampling errors. To ensure adding up, we orthogonalized the sampled factors, ordering the global factor first, the regional factor second, and the country factor third. Our simulations suggest that the order of orthogonalization has little impact on the results. In particular, all of the results remain qualitatively similar under alternative orderings, and the quantitative differences are small.

We also calculated the median (rather than mean) variance shares attributable to each factor for the full sample and each region. As these lead to qualitatively similar conclusions, we only report results using means.

Specifically, our global factor model captures the global recessions of 1974, 1982, 1991, and 2009 identified by Kose, Loungani and Terrones (2013).

We do not present the factors and results with respect to their persistence here. They are available from the authors upon request.

To examine the implications of the post-crisis period on our findings, we extend our sample to 2015 using forecasted series in Section VI.C , but our headline results do not change.

Mexico and the United States undertook trade negotiations on specific sectors and reached framework agreements in 1985, 1987, and 1989. Mexico and Canada started discussions toward closer bilateral trade relations in 1990. Canada and the United States began negotiations for a free trade area in 1986 and launched the Canada-U.S. Free Trade Agreement (CUSFTA) in 1989 (Kose, Meredith, and Towe, 2005; Lederman, Maloney, and Servén, 2005).

Statistics for intra-regional financial assets are based on the IMF’s Coordinated Portfolio Investment Survey .

See Devereux and others, (2011) and Waysand, Ross, de Guzman (2010) for the evolution of financial integration in Asia and Europe, respectively. See Petri, Plummer, and Zhai (2011) and Arribas, Pérez, and Tortosa-Ausina (2011) analyze the growth of trade linkages in Asia and Europe, respectively.

de Haan, Inklaar, and Jong-A-Pin (2008) present a survey of the rich literature on business cycle synchronization in the euro area. They argue that this literature has been unable to produce conclusive results on the convergence of cycles in the euro area because of differences in data series and methodologies employed.

Karagedikli and Thorsrud (2012) employ a FAVAR model to analyze the evolution of activity (GDP and IP) and price (CPI and PPI) factors over time. They use the quarterly data of 31 countries covering four regions (Asia, Europe, North and South America) over the period 1990:1-2009:4. They document that regional demand and supply shocks play important roles in explaining national business cycles. Mumtaz, Simonelli, and Surico (2011) analyze the evolution of global and regional cycles in GDP and inflation for 35 counties in five regions (Asia, Europe, Oceania, North and South America) over the period from the mid 1800s to 2007 using a dynamic factor model. They find that while the importance of the global factor has declined, regional cycles have become more pronounced in all regions except North America during the period 1985–2007.

Although our findings on the surface appear to be different from those of Kose, Otrok, and Whiteman (2003), they are indeed consistent. The new study provides a nuanced view about the existence (and emergence) of regional cycles. The differences between our findings and theirs are primarily driven by the differences in the selection of regional groupings, the number of countries in the sample, and most importantly the time period covered. The regional cycles have become more important in the 1985–2010 period most of which was not included in the sample in Kose, Otrok, and Whiteman (2003) which ends in 1990. Moreover, our use of a larger sample (and larger sub-samples in most regions) allows us to draw a sharper contrast across regions in terms of their exposure to the global economy.

Some studies present models that are able to produce results consistent with the dynamics of investment we report here. In Head’s (2002) model, cross-country correlations of investment are positive because of increasing returns to the worldwide variety of intermediate goods. Heathcote and Perri (2004) show that changes in the correlation structure of shocks and extent of the portfolio diversification affect cross-country investment correlations in international business cycle models.

If we focus on the absolute changes in the importance of global and regional factors in explaining output variation, our results indicate that the share of the global factor rises in the second sub-period in 39 countries and declines in 67 countries. Similarly, the share of the regional factor rises in the second sub-period in 69 countries and goes down in 37. Detailed results are available from the authors upon request.

We also conduct some formal tests to examine whether there is a structural break in the sample. In particular, we perform some univariate break tests for a variance break following Stock and Watson (2005). We use the Andrews (1993) test for a break in either the unconditional variance or the persistence of each time series at an unknown date. Searching over the middle two-thirds of the full time span of the sample, we find that the majority of those time series that have a break in their unconditional variance experience that break in or before 1984. A similar test for a break in the autoregressive parameter of a univariate AR(1) model indicates that a substantial share of the series that have a break have it by 1984.

The details of sensitivity results reported in this sub-section are available from the authors upon request.

The first lag is significant in only 12, 10, 13 (out of 106) time series of output, consumption, and investment, respectively. Focusing on the North America, Europe, Asia and Oceania regions, the first lag is significant in only 3, 4, 6 (out of 39) time series for output, consumption, and investment, respectively. The second lag is of similar importance, with a significant coefficient in 9, 7, 16 percent of the time series for output, consumption, and investment, respectively.

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Call for Papers | Journal of International Marketing: Marketing’s Role in the Management of Fast-Evolving Global Supply Chains

Globalization and digitalization have reshaped global supply chain operations (Alicke et al. 2023). In particular, geopolitical disruptions such as the China–U.S. trade war, Brexit, and Middle East tensions have triggered the reconfiguration of global supply chains for many global companies (Bednarski et al. 2023; Henrich et al. 2022). The Russia–Ukraine war has further accelerated the decoupling between the U.S. and China as well as between the West and Russia. In this rapidly changing and uncertain environment, Apple, for example, has considered reshoring some of its manufacturing back to the United States. Other global companies are also considering a “China + 1” or “China + 2” strategy for their contract manufacturing operations. Such strategies allow international marketing managers to keep some of their manufacturing in China while establishing new production locations, often with the same suppliers, in countries such as Vietnam, India, or Mexico, where political risks and labor costs are more manageable (Vertinsky et al. 2023). Other external shocks and natural disasters such as the COVID-19 pandemic and earthquakes have disrupted firms’ supply chain operations around the world (Panwar, Pinkse, and De Marchi 2022). For example, demand for in-person restaurant dining has decreased, whereas demand for food delivery and home-based consumption has greatly increased (Jeong et al. 2023), forcing multinationals like KFC and McDonalds to modify their operations in host markets. Under such market changes, firms need to explore new ways of organizing their global supply chains with respect to factors like product diversity and cooperation with more partners in the supply chains and ecosystems around the world (Davis et al. 2023; Henrich et al. 2022). These challenges highlight the critical need for international marketing managers to improve planning and forecasting for their global supply chains to be more agile and resilient.

Furthermore, shareholders and stakeholders have been demanding greater accountability from companies, pressing international marketing managers to take responsibility for the environmental, social, and governance (ESG) impacts of their global supply chain and manufacturing activities and to ensure that they’re doing business in an ethical, sustainable, and fair fashion (Henrich et al. 2022). While marketing’s approach to this new expectation varies by country, the market now expects the same standards to be enforced throughout a company’s global supply chain. Accordingly, the stakeholders of global brands, who often hold strong expectations regarding appropriate ESG-related behaviors, have begun scrutinizing not only the firms selling the branded products worldwide but also their entire global supply chains (Mateska et al. 2023).

In the meantime, the emergence of advanced technologies such as AI and Industry 4.0 bring about great opportunities for international marketing managers to coordinate and configure their global supply chains automatically (Alicke et al. 2023; Ejaz and Hegedűs 2023; Lee et al. 2023). For example, Unilever uses an AI application and service to find alternative supply sources on short notice. Koch Industries, one of the largest privately held conglomerates in the U.S., is leveraging an AI tool to optimize its supplier base. Industry 4.0 can also help international marketing managers enhance their resilience to cope with global supply chain disruptions (Tan 2023). Further, cloud computing and blockchain technologies also help integrate a firm’s supply chain partners; enhance the transparency, efficiency, and timeliness of global supply chain activities; and enable international marketing managers to cope with communication barriers in the market. However, there is a potential downside: When there are unanticipated natural disasters or geopolitical tensions (Henrich et al. 2022), minimizing potential interruptions in such optimized, digitalized, and complex global supply networks may pose major challenges. Thus, managing global supply chains in the era of digitalization emerges as a critical and challenging task for international marketing managers.

Despite these emerging challenges and opportunities for international marketing managers, academic research on these areas is limited. Most academic work on supply chain management has focused on domestic context and overlooks how different formal and informal institutions would shape firms’ global supply chain strategies (Usui, Kotabe, and Murray 2017). Specifically, little research attention has been paid to how global supply chains can be managed to improve the flow of supplies from the perspective of international marketing, how firms can cope with emerging managerial challenges, or how international marketing managers can take advantage of new opportunities in their global supply chains. To fill this gap, there is an urgent need to develop new theories, modify existing theories, and determine how firms can manage their global supply chains in the face of emerging trends of globalization and digitalization.

Submission Process

All manuscripts will be reviewed as a cohort for this special issue of the Journal of International Marketing . All submissions will go through the Journal of International Marketing’s double-anonymized review and follow standard norms and processes. Submissions must be made via the journal’s ScholarOne site , with author guidelines available here . For any queries, feel free to reach out to the special issue editors.

Manuscripts must be submitted between December 1, 2024 and March 1, 2025.

Guest editors.

Daekwan Kim ([email protected]) is Spencer-Feheley MBA Professor in the College of Business at Florida State University and a Visiting Eminent Scholar at Kyung Hee University in Seoul, Korea. His research interests include the impact of IT and Industry 4.0 on interfirm relationships and relational performance, marketing/international marketing strategies, and international buyer–seller relationships. His research has appeared in the Journal of International Business Studies, Journal of Academy of Marketing Science, Decision Sciences Journal, Industrial Marketing Management, Journal of Business Research, Journal of International Marketing, Journal of World Business, Management International Review, International Marketing Review, International Business Review, and others. He is currently a Senior Editor of International Business Review and an Associate Editor of Decision Sciences Journal, and serving on the editorial boards of Journal of International Business Studies, Industrial Marketing Management, Journal of Business Research, Journal of International Marketing, and Thunderbird International Business Review.

Ruey-Jer “Bryan” Jean ([email protected]) is Distinguished Professor of International Business at the Department of International Business, National Taiwan University, Taipei. He received his PhD from University of Manchester, UK. His research focuses on interorganizational relationship management and international new ventures in digital and data-rich environments, with a focus on emerging markets. He has published widely in peer-reviewed academic journals, including the Journal of International Business Studies, Journal of Management Studies, Journal of World Business, Management International Review, International Business Review, International Marketing Review, Journal of Business Research, Journal of International Management, and Journal of International Marketing. He is currently an Associate Editor of International Marketing Review and serving on the editorial boards of Journal of Business Research, International Business Review, and Asia Pacific Journal of Management.

S. Tamer Cavusgil ([email protected]) is Regents’ Professor and Fuller E. Callaway Professorial Chair and Executive Director, CIBER, Robinson College of Business, Georgia State University. A trustee of Sabanci University in Istanbul, Türkiye. Tamer authored more than several dozen books and some 200 refereed journal articles. He mentored over 40 doctoral students at Michigan State and Georgia State who have become accomplished educators around the world. Tamer holds an honorary doctorate from The University of Hasselt and the University of Southern Denmark, in addition to being named as an Honorary Professor by Atilim University in Ankara, Türkiye. He is an elected Fellow of the Academy of International Business. Tamer holds a Bachelor of Science degree from the Middle East Technical University in Ankara, Türkiye. He earned his MBA and PhD from the University of Wisconsin.

Ayşegül Özsomer ([email protected]) Ayşegül Özsomer is Professor of Marketing at Koç University, Istanbul, Türkiye. She specializes in global marketing, branding, emerging markets and the role of marketing in tough economic times. She has published in top scholarly journals including the Journal of Marketing, Journal of Marketing Research, International Journal of Research in Marketing, and Journal of International Marketing. Ayşegül received several research awards including the 2011 Gerald Hills Best Paper Award for ten-year impact on entrepreneurship research, the 2013 Cavusgil Award for her paper investigating the interplay between global and local brands, and the 2023 Cavusgil Award for her paper on marketing agility. She has held visiting scholar positions at the University of Michigan, Ann Arbor, the Anderson Graduate School of Management, UCLA, and Harvard University. Her co-authored book, The New Emerging Market Multinationals: Four Strategies for Disrupting Markets and the Competition (McGraw Hill) was selected the best strategy book by Business+Strategy.

Alicke, Knut, Tacy Foster, Katharina Hauck, and Vera Trautwein (2023), “Tech and Regionalization Bolster Supply Chains, but Complacency Looms,” McKinsey (November 3), https://www.mckinsey.com/capabilities/operations/our-insights/tech-and-regionalization-bolster-supply-chains-but-complacency-looms .

Bednarski, Lukasz, Samuel Roscoe, Constantin Blome, and Martin C. Schleper (2023), “Geopolitical Disruptions in Global Supply Chains: A State-of-the-Art Literature Review,” Production Planning & Control , https://doi.org/10.1080/09537287.2023.2286283 .

Davis, Cameron, Ben Safran, Rachel Schaff, and Lauren Yayboke (2023), “Building Innovation Ecosystems: Accelerating Tech Hub Growth,” McKinsey (February 28), https://www.mckinsey.com/industries/public-sector/our-insights/building-innovation-ecosystems-accelerating-tech-hub-growth .

Ejaz, Muhammad R. and Dániel Hegedűs (2023), “Designing a Conceptual Framework for Industry 4.0 Technologies to Enable Circular Economy Ecosystem,” Managing Global Transitions , 21 (2), 121–48.

Henrich, Jan, Jason Li, Carolina Mazuera, and Fernando Perez (2022), “Future-Proofing the Supply Chain,” McKinsey (June 14), https://www.mckinsey.com/capabilities/operations/our-insights/future-proofing-the-supply-chain .

Jeong, Insik, Ruey-Jer Jean, Daekwan Kim, and Saeed Samiee (2023), “Managing Disruptive External Forces in International Marketing,” International Marketing Review , 40 (5), 936–56.

Lee, Jeoung Y., Daekwan Kim, Byungchul Choi, and Alfredo Jiménez (2023), “Early Evidence on How Industry 4.0 Reshapes MNEs’ Global Value Chains: The Role of Value Creation Versus Value Capturing by Headquarters and Foreign Subsidiaries,” Journal of International Business Studies , 54 (4), 599–630.

Mateska, Ivana, Christian Busse, Andrew P. Kach, and Stephan M. Wagner (2023), “Sustainability-Related Transgressions in Global Supply Chains: When Do Legitimacy Spillovers Hurt Buying Firms the Most?” Journal of Supply Chain Management , 59 (4), 42–78.

Panwar, Rajat, Jonatan Pinkse, and Valentina De Marchi (2022), “The Future of Global Supply Chains in a Post-COVID-19 World,” California Management Review , 64 (2), 5–23.

Tan, Hooi (2023), “It’s Time to Join the Fourth Industrial Revolution,” SME Media (June 22), https://www.advancedmanufacturing.org/smart-manufacturing/its-time-to-join-the-fourth-industrial-revolution/article_035bc430-059d-11ef-b638-d772541cc117.html .

Usui, Tetsuya, Masaaki Kotabe, and Janet Y. Murray (2017), “A Dynamic Process of Building Global Supply Chain Competence by New Ventures: The Case of Uniqlo,” Journal of International Marketing , 25 (3), 1–20.

Vertinsky, Ilan, Yingqiu Kuang, Dongsheng Zhou, and Victor Cui (2023), “The Political Economy and Dynamics of Bifurcated World Governance and the Decoupling of Value Chains: An Alternative Perspective,” Journal of International Business Studies , 54 (7), 1351–77.

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Originally published in 1998. This collection of outstanding essays explores the importance of regionalization and globalization to the world economy. International contributions explore the process of regionalization in the Pacific Area, The Americas, Africa and Europe, and question whether the world economy is characterized by increasing regionalization, rather than globalization. The book ...
(PDF) Regionalization, Globalization, and Nationalism: Convergent
dimension: (1) regionalization as a component of globalization. (convergent trends); (2) regionalization as a challenge or response to. globalization (divergent trends); (3) regionalization and ...
Globalization and Asia: The Challenges for Regional Cooperation and the
The theme of my remarks this morning is globalization. Hong Kong is an ideal location to discuss this topic, since many of the East Asian economies, and Hong Kong in particular, represent the very essence of globalization—open, dynamic economies that continue to amaze the world with their rapid economic growth and development.
Difference between Globalization and Regionalization
Globalization refers to the process of expanding your business operations onto a global scale. This can include selling products or services in other countries or setting up offices or factories in other parts of the world. Regionalization is the opposite of globalization - it refers to the process of dividing your business into smaller units ...
Regionalization vs. Globalization in: IMF Working Papers Volume 2013
Citation: IMF Working Papers 2013, 019; 10.5089/9781557753281.001.A001. Notes: We estimate the model separately over the two periods, 1960-84 (yellow) and 1985-2010 (blue). We then compute the variance decompositions for each country, for output, consumption and investment in each of these two periods.
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Overview. Globalization and digitalization have reshaped global supply chain operations (Alicke et al. 2023). In particular, geopolitical disruptions such as the China-U.S. trade war, Brexit, and Middle East tensions have triggered the reconfiguration of global supply chains for many global companies (Bednarski et al. 2023; Henrich et al. 2022).
Organization of river-sea container transportation in the ...
Port systems' regionalization is driven by inland port construction and shipping logistics. Among them, riverports are unique inland ports that are connected by seaport systems and contribute to a river-sea container transportation (RSCT) organization. Through a case study of the Yangtze River, this study conceptualizes RSCT based on the "spatial-network" perspective, and the driving forces ...