Once fueled by technology transfer, learning, and open markets, the extraordinary growth driven by globalisation is now constrained by rising geopolitical tensions, fragmentation, and declining trust – making future ‘growth miracles’ far less likely.
Editor's note: This episode of VoxDevTalks is also available on Spotify, Apple Podcasts, and YouTube.
The promise and limits of globalisation
In this episode of VoxDevTalks, Pinelopi Goldberg and Michele Ruta discuss their forthcoming handbook chapter on the changing nature of international trade. Together, they revisit the past decades of globalisation and ask whether the era of ‘growth miracles’ is now over.
While trade liberalisation and export-led growth helped transform economies in East Asia, Goldberg argues that traditional models of static comparative advantage do not explain the scale of success.
Instead, their analysis focuses on dynamic gains – the processes that change a country’s productivity, skills, and institutions over time. The conversation explores how those dynamic mechanisms powered industrialisation in the past, and why they may now be faltering amid rising geopolitical tensions and shrinking global trust.
Understanding how trade drives growth
The discussion begins with a clear distinction between static and dynamic gains from trade. Static models assume fixed resources – such as capital, labour and technology – and predict modest improvements through specialisation and reallocation.
“Trade can explain growth through static channels, but it cannot explain these miracles that we’ve seen in the past.” Goldberg
Dynamic channels, on the other hand, allow economies to evolve. They involve learning, technology transfer, human capital development, and institutional change – processes that reshape the foundations of an economy.
The pair identify three sets of conditions that enabled those miracles:
- Technological change, such as the rise of containerisation and global value chains.
- Policy liberalisation, including multilateral cooperation and the retreat from industrial policy.
- Geopolitical stability, which provided the predictability that cross-border trade and investment required.
They note that all of these preconditions are currently being eroded.
The power of market size and knowledge sharing
Access to large, lucrative markets was central to development success. Goldberg notes that for smaller or less wealthy economies, a minimum market scale is essential to absorb the fixed costs involved in adopting modern production methods. Export opportunities allowed countries like Singapore, Taiwan, and South Korea to reach that threshold much earlier than they could have through domestic demand alone.
But trade was not just about selling goods – it fostered learning and technological upgrading. Countries invested in education and training because trade created demand for higher skills.
“Trade created the demand conditions that made these human capital investments worthwhile.” Goldberg
Knowledge also spread through global value chains, as firms coordinated production across borders.
“They need to make their products compatible; through this process, they exchange knowledge, and as they exchange knowledge, they also upgrade each other’s skills.” Goldberg
This exchange relied on trust and predictability. Goldberg stresses that successful knowledge exchange required both parties to recognise its value. During the height of globalisation, firms and governments shared the conviction that trade and prosperity could benefit everyone, a mindset that has since begun to erode.
The multilateral order and its unravelling
Turning to multilateral institutions, Ruta highlights the stabilising role of the World Trade Organization (WTO) and similar frameworks.
“The alternative to the rules-based trade system is a power-based system, and a power-based system is much more unpredictable.” Ruta
He explains how the WTO’s “most-favoured-nation rule” protected smaller economies from being disadvantaged in bilateral bargaining, and how trade agreements acted as commitment devices that allowed governments to pursue welfare-improving reforms.
Yet the erosion of this system – especially the paralysis of WTO dispute settlement – represents “bad news for the global economy as a whole, but particularly bad news for developing economies.”
During the 1990s and 2000s, global trade was seen not only as an economic engine but as a path to peace and cooperation. Today, with renewed great-power rivalry, that optimism feels misplaced.
The digital frontier: Can services trade spark new miracles?
Whether the next wave of globalisation could come from digitisation and services trade remains “the billion-dollar question.”
On the bright side, trade in services has grown rapidly – by approximately 8% a year over the past two decades. Digital products and IT-enabled services replicate the firm-to-firm collaborations that once drove manufacturing value chains. However, Ruta warns that this transformation may not be as inclusive.
“Many of these promising, credible services are quite skill-intensive… In order to be successful there, you also need to have an important investment in human capital.” Ruta
He also points to policy barriers: services sectors are often tightly regulated, and fears about job losses could lead to new protectionism.
“The future of trade may be in services, maybe also the future of trade protectionism is going to be in services.” Ruta
Whether services trade can deliver the kind of broad-based, transformative growth once achieved by manufacturing remains uncertain.
Resilience, climate risk, and the myth of fragile supply chains
Goldberg challenges the narrative that global supply chains failed during the pandemic.
“If anything, global supply chains proved incredibly resilient and we would have been much worse off without the global supply chains.” Goldberg
She cites the Pfizer vaccine, which required 65 ingredients from 14 countries, as proof of their adaptability.
However, she concedes that geopolitical shocks – such as Russia’s invasion of Ukraine – have exposed real vulnerabilities. Ruta adds that climate change poses another threat, particularly for developing economies dependent on agriculture and tourism:
“Any disruption that climate change will have on these sectors will have important implications for trade of developing countries.” Ruta
Even the green transition could reproduce old inequalities. While resource-rich African countries may benefit from demand for rare minerals, Goldberg warns that “there is absolutely no guarantee that this will lead to growth and development.”
Industrial policy and fragmentation: A new age of uncertainty
Industrial policy has made a comeback, especially in advanced economies.
“My honest answer is that I have no idea what industrial policies will have a permanent impact on global trade.” Ruta
He notes a sharp rise in such interventions since 2009, with a surge after 2020.
These policies, often aimed at reshoring production, may undermine the opportunities that global value chains once offered developing countries.
“If the objective of certain industrial policies is to relocate production of a certain product within the national borders, this obviously goes against the possibility of developing countries to access technologies and knowledge spillovers.” Ruta
At the same time, geopolitical fragmentation is redrawing trade patterns. Early evidence shows trade growth slowing between rival blocs, while integration deepens within them. The danger, Ruta says, is that “fragmentation will not necessarily create opportunities for least developed countries to integrate more.”
The future of global trade
Both economists agree that growth is still possible, but the age of “hyperglobalisation” – with its extraordinary convergence of openness, technology, and trust – is unlikely to return.
“Growth miracles seem less likely because two of the key mechanisms – access to big, lucrative markets and willingness to share technology across borders – no longer seem to be here.” Goldberg
As global trade enters a new, more fragmented era, the challenge for policymakers will be to find fresh ways to generate dynamic gains – in a world where the rules, and the relationships, are shifting fast.