The New Era of Digital Globalization

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The New Era of Digital Globalization

Globalization is the exchange of products, services, people, money, and data across national borders.  In recent years, the growth of these types of exchanges has slowed down.  This is to be expected.  After all, the world contains a finite number of people, which limits how many can move from one country to another.  The world’s population needs a finite number of televisions, t-shirts, and bananas, so there is a natural limit to the number of those goods that will be produced in one country and sold in another.

But one type of exchange is not finite:  data.  In fact, the more data that people consume—in the form of videos, information searches, blogs, social media posts, and e-commerce transactions—the more their demand increases. 

As a result, according to a Business Roundtable study reported in InformationWeek, the amount of “online data exchanged across national borders increased by a factor of eighteen between 2005 and 2012.”  The study predicts that by 2025 the amount of data will increase another 700 percent.1

A newer study from the McKinsey Global Institute reached a similar conclusion.  The McKinsey analysts modeled the flows of “goods, services, finance, people, and data” for ninety-seven countries.  The combined impact of all of these flows created $7.8 trillion in value in 2014, boosting global GDP by about 10 percent.2 

Almost one-third of this impact, $2.2 trillion, was due to the flow of data across national borders, or “digital globalization.”  That’s a greater contribution to the world’s wealth than the global trade in products or foreign direct investment—and that contribution is even more remarkable when you consider that cross-border data flows barely existed as recently as fifteen years ago.

What’s driving this trend?  The technology that makes data flows possible has matured and become widely adopted.  As McKinsey points out, over the past decade the bandwidth that is used to share data across borders has gone up forty-five times, from 3.1 terabits per second in 2005 to 140.8 terabits per second in 2014.  That’s just the beginning; McKinsey’s projection is even more bullish than that of the Business Roundtable.  The consulting firm predicts that data flows will grow another nine times within the next five years.

The benefits of global data flows include:

  • Lower transaction costs: Digital commerce, whether business-to-business or business- to-consumer, is more efficient than the traditional model of international trade...

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