The call for a less integrated world expressed in the wake of the coronavirus pandemic would lead to a loss of income and prosperity. This is according to a recent study by the ifo Institute. “Rolling back globalization, for example by bringing production back to Germany on a larger scale, would not be a solution to the current crisis,” says Lisandra Flach, Director of the ifo Center for International Economics.
“We can show that if we reverse globalization now, the economic consequences of COVID-19 would be only marginally smaller,” Flach adds. In Germany, renationalization and bringing back production would have enormous negative consequences for the country’s economic strength. “In a world where trading costs are 100 percentage points higher among all trading partners, the COVID-19 shock would lead to a 7.4 percent reduction in real income,” explains Marina Steininger, co‑author of the study.
“In a less integrated world, our economic output (GDP) would already be at a much lower level,” Flach continues. According to calculations by the ifo Institute, COVID-19 has reduced Germany’s GDP back down to its 2013 level. In a less globalized world, the current GDP level would be comparable to that of 1996. It’s true that the COVID‑19 shock affects globalized countries more than closed economies; however, globalization has already lifted the countries involved to a level they would never have reached without worldwide value creation.
“The crisis is affecting the various sectors very unevenly. In percentage terms, manufacturing has been hit the hardest, especially the automotive and pharmaceutical sectors,” Steininger says.
Article: “Globalisation after COVID-19: Consequences of the Pandemic for the German Economy” by Lisandra Flach and Marina Steininger, in: ifo Schnelldienst 7/2020; published here.