The Post Globalized World Part 1: Why The PIGS Are Out Of Luck

Tyler Durden's picture

There are three key factors to modeling trade flows - or relevance - in a post-globalization world. While competitiveness is important, countries gain from being generally 'Technology-rich', 'Labor-rich', and/or 'Resource-rich'. The following chart, from Deutsche Bank, shows where the world's countries fit into the Venn diagram of give-and-take in a post-globalization market. The red oval highlights where Italy, Greece, Portugal, and Spain (and Argentina sadly enough) do not fit into this picture. Two words - Euro-sustainability?

Analysis of Global Competitive Advantages


and where they each stack up...


How things have changed...


Deutsche Bank drills down:

1. “Technology rich” advanced economies: These countries generate exports by producing advanced goods and having companies that organize global production processes. These economies tend to benefit from their strong infrastructure, good education, high number of patents and strong companies that arrange sophisticated production processes (potential with global sourcing). Germany, Switzerland, Scandinavia and Japan are appropriate examples, in our view. As variables for “technology-richness” we consider patent grants (sum '05-'10 per '000 population), internet users per 100 (2010), UN Education Index (avg. '05-'10), quality of institutions (rule of law, property right, organized crime, corruption, etc.), quality of overall infrastructure, quality of educational system, and firm-level technology absorption (The last four variables come from the competiveness study of the World economic forum)

2. Labour rich countries: These countries generate exports because they have a high number of workers, low labour costs in a global comparison or in a regional comparison (Eastern Europe relative to Western Europe or Mexico relative to the US) and an infrastructure sufficient for global companies to set up production sites. China, Thailand, Poland and Czech Republic could fall into this category.

3. Commodity rich countries: The countries generate exports from natural resources. They have benefited from rising commodity prices over the last decade for some of commodities. Saudi Arabia, Brazil, Russia and other oil countries are classical examples. For commodity-richness we use share of commodity exports of total merchandise exports (avg. '05-'10) and commodities export value as share of GDP (avg. '05-'10). For labour-richness we look at share of population employed in mining and manufacturing (avg. '05-'10), ratio of labour force to GDP (avg. '05-'09), employment in agriculture (% of total employment, avg. '05-'10), manufacturing value added (% of GDP).

4. Countries without strong comparative advantages: Those countries that are not very strong in one of the three categories mentioned above have found it harder to increase their exports over the last decade. They may have taken part in global trade by increasing their debt levels. Greece may be one prominent example. The question is which other countries would fall into this category.