Connectivity is an ontological feature of communities since it involves at least two subjects that share a motivation to interact. If we focus on the economic motivation, connectivity is necessary to undertake transactions, to manage organizations and to exploit the potential of comparative advantages of economic agents.
Connectivity can be unbalanced (e.g. due to different bargaining powers and to the principle of “preferential attachment” according to which agents prefer to connect to peers with the most connections) and magnifies the risks (as popularized in faunal explanations that trace the wide-ranging effects of the flapping of a butterfly’s wing or the once mistaken belief in the non-existence of a black swan).
However, connectivity implies a bilateral relationship (it takes two to tango) and improved connectivity is a condition that escapes isolation and makes interdependence “contestable” when barriers to interacting are lowered and economic agents contribute to fostering a (potential) competition of interactions. Hence connectivity is a driver that can improve, in principle, the overall welfare of connected agents. This is why the current trend is towards increasing global connectivity.
We can find evidence of this trend using three different perspectives: 1) the political willingness to be connected, 2) the availability of infrastructure that provides connectivity, 3) the actual flows and activities that explain connectivity.
As far as the availability of infrastructure is concerned, there is clear evidence of growing expenditure on infrastructure that is the ‘backbone’ of connectivity. According to the Global Infrastructure Hub (a G20 initiative), spending on energy, transport, telecommunications, and water infrastructure increased from 1.8 trillion USD in 2007 to an estimated 2.6 trillion in 2018 (Figure 1).
Since 2007, global infrastructure spending has tended to be dominated by just two sectors, electricity and roads, which account for almost two-thirds of total spending. Telecoms and rail have each contributed to around one-eighth of total spending, and a similar amount has come from investment in water, and (in combination) ports and airports.
Figure 1 – Infrastructure investment (billion USD)
For the other two perspectives – i.e., the political willingness to be connected, and the actual flows and activities that explain connectivity – we can use data provided by KOF Swiss Economic Institute. This institution calculates a Globalization Index that encompasses the economic, social and political dimensions of globalisation. Economic globalization characterizes long distance flows of goods, capital and services as well as information and perceptions that accompany market exchanges; social globalization expresses the spread of ideas, information, images and people; political globalization characterizes the diffusion of government policies.
Moreover, the same index distinguishes between de jure and de facto globalization. While, de jure globalization measures policies and conditions that, in principle, enable, facilitate and foster flows and activities, de facto globalization measures actual international flows and activities. Hence we can use those two indexes as proxy to measure respectively the political willingness to be connected, and the actual flows and activities that explain connectivity.
The economic globalization has been on the rise during the last decades (Figure 2). Both the de jure and de facto measures received a boost after the end of the Cold War and with the GATT’s Uruguay Round of negotiations that led to the creation of WTO in 1995. While, on the de facto side, it is clear the effect of the early 1990s recessions, mainly in the US and in the UK, and the recent 2007-2008 global financial crisis.
Figure 2 – Economic globalization at world level
If we explode the world index of economic globalization we find a decreasing elasticity of the difference between de facto and de jure economic globalization to the national income, i.e., the GNI per capita (Figure 3).
Figure 3 – Economic globalization (2014-2016 average)
That means the power of the national sovereignty (through the de jure tools) to generate effective connectivity is greater for the least developed and developing countries since they enter in a context where regulations, standards and technical requirements are already similar across the globe, thus facilitating trade and investments.
Many countries are still far from being substantially free, where freedom is the combination of political rights and civil liberties. However, those countries experiencing connectivity and economic openness have experienced faster growth that, in many cases, improved freedom. This virtuous circle can be explained by the consistency that, in the long run, the economic model and the political model should reach.