Global flows: The ties that bind in an interconnected world

Ours is an interdependent world, connected by global flows of goods, services, capital, people, data, and ideas. Global value chains have been built on these flows, creating a more prosperous world. However, in light of the pandemic, Russia’s invasion of Ukraine, and years of rising tensions between the United States and China, some have speculated that the world is already deglobalizing. New MGI analysis finds a reality that is more nuanced. The globe remains deeply interconnected, and flows have proved remarkably resilient during the most recent turbulence. Furthermore, no region is self-sufficient. The challenge therefore is to harness the benefits of interconnection even while managing the risks and downsides of dependency—particularly where products are concentrated in their places of origin.  

While global trade has stabilized, flows linked to knowledge and knowhow are driving global integration.

No region is close to being self-sufficient.

Every region imports more than 25 percent of at least one important type of resource or manufactured good that it needs, and often much more. Latin America, Sub-Saharan Africa, and Eastern Europe and Central Asia are net importers of manufactured goods; they import more than 50 percent of the electronics they need. The European Union and Asia–Pacific import more than 50 percent and 25 percent, respectively, of their energy resources. North America has fewer areas of very high dependency but relies on imports of both resources, notably minerals, and manufactured goods.  

Products whose origins are concentrated in just a few geographies exist in all sectors and most notably in electronics and mining.

Global value chains have evolved gradually in the past but may be shaped by new forces in the coming decade.

Global value chains have long been dynamic but with gradual shifts in composition. In the past, individual countries gained (or lost) no more than 2 percent of export share a year (annualized), and value chains cumulatively shifted by about 10 to 20 percent per decade. Between 1995 and 2008, the direction of change was almost uniformly toward less concentration and more interregional trade as truly global value chains were unleashed by trade liberalization and technological progress. After around 2008, patterns of trade flows diverged. Global value chains accounting for around 40 percent of trade, including energy resources, electric equipment, and pharmaceuticals, reversed course, becoming more concentrated. The remaining value chains either stabilized or continued to become less concentrated and more interregional. This was the case for many services value chains, including professional services. Now new forces are emerging that could shape and accelerate the next evolution of some value chains. Policy makers are taking active steps to reconfigure value chains deemed to have strategic importance, while resilience, national economic priorities, and stakeholder pressures join technology, demand, and factor costs as key drivers of companies’ decisions about their global footprint.

Multinational corporations play a pivotal role in managing global flows to deliver both growth and resilience in an interconnected world.

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Global flows: The ties that bind in an interconnected world was first published by McKinsey Global Institute on 15 November 2022. Download the full report here.

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