Cambridge Journal of Economics 2012, 36, 481493

doi:10.1093/cje/ber018
Advance Access publication 16 September 2011

Trade flows revisited: further evidence on

globalisation

We consider the relative effects of globalisation and regionalism in the context of

recent developments in the world economy. We extend and advance the work of
Chortareas and Pelagidis using the recently updated Penn World Tables data. This
allows consideration of the recent golden era of globalisation, great moderation and
the Washington consensus. We produce evidence that corroborates the findings of
Chortareas and Pelagidis. We find, however, that in the 1990s and in the new
millennium globalisation dynamics outpace regionalism. Nevertheless, regionalism
displays resilience and in a potential de-globalisation context it is more likely to
dominate over globalism.
Key words: Globalisation, Regionalism, Convergence
JEL classifications: F20, F150, F150

1. Introduction
A paper published in a previous issue of the Cambridge Journal of Economics, (Chortareas
and Pelagidis, 2004; henceforth CP), examines the extent and geographical content of
trade flows using both descriptive statistics and convergence tests applied to the degree of
country openness. The findings suggest that trade globalisation is less impressive than
conventional wisdom suggested at the time the CP paper was written, which covers the
period 19601992. In particular, using the Penn World Tables data, the authors produce
evidence that regional trade flows increased with a faster pace as compared to the global
trade flows. Even in countries that operated without substantial trade barriers, global trade
flows appear less dense than regional ones and trade ties within regional blocs seem to
develop at a relatively faster rate in the new international economy. This evidence
corroborates the view advanced by Kleinknecht and Wengel (1998), and Hirst et al. (2009)
that internationalisation takes place as economic integration within regional boundaries.1
Moreover, the findings of CP are cited in a number of recent analyses that explore
Manuscript received 6 October 2010; final version received 22 June 2011.
Address for correspondence: Philip Arestis, Cambridge Centre for Economic and Public Policy, Department
of Land Economy, University of Cambridge, 19 Silver Street, Cambridge CB3 9EP, UK; email:
pa267@cam.ac.uk
* University of Cambridge, UK, and University of the Basque Country, Spain; University of Athens,
Greece; Aristotle University of Thessaloniki, Greece; University of Piraeus, Greece.
1
Hirst et al. (2009, chapter 6 in particular) provide empirical detail on globalisation versus regionalisation.
The Author 2011. Published by Oxford University Press on behalf of the Cambridge Political Economy Society.
All rights reserved.

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Philip Arestis, Georgios Chortareas, Evangelia Desli and Theodore Pelagidis*

482

P. Arestis et al.

2
From the 1990s to the 2000s the number of countries categorised by the OECD as converging
developing economies increased from 12 to 65, while the number of struggling economies fell to 38 from 66
and the poor economies also fell from 55 to 25. The growth of the emerging market and other large
developing countries impacts the pattern of trade flows in a number of ways and in an asymmetrical fashion.
For example, between 1990 and 2008 world trade expanded almost four-fold, but the south-to-south trade
multiplied more than twenty times (see, e.g., OECD, 2010).

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regionalisation and globalisation processes, including Thompson (2003, 2011), Smith

(2005), Thomas (2005), Levy (2006), Hay (2007), Ravenhill (2008), Chang and Lee
(2010) and OECD (2010). The key finding of CP highlighted in the above works is the
possibility that the spectacular growth of global trade over the last two decades has been
principally driven by regional processes (OECD, 2010, p. 167).
The analysis of CP, however, is subject to a number of caveats. First, the advantage of
using a homogenised and widely acceptable global dataset, namely the Penn World Tables,
comes at the cost of truncating the analysis according to the available data span, which is
from 1960 to 1992 as in CP. Second, since the data terminate in 1992 the analysis does not
cover most of the 1990s, which is supposed to be the pinnacle of modern globalisation, the
great moderation, and the ideological dominance of free trade and unfettered markets
views. Third, the global economy has undergone significant transformations over this
period. The emerging countries increased their presence in the world economy acting as
driving forces of global GDP growth with the new role of large emerging markets (i.e.
Brazil, India and China) resulting in substantially evolving trade patterns. In addition to
becoming centres of strong growth in the global scene, the developing and emerging
economies enhanced their presence in regional economic affairs. Trade flows (as well as aid
and investment flows) between developing countries intensified. Exports from developing
countries constitute more than a third of global exports and south to south trade
constitutes almost half of the global trade (OECD, 2010).2 Fourth, the current global
economic crisis, which started in August 2007, has, if anything, intensified some of these
trends (e.g. the phenomenon of shifting wealth towards the emerging and developing
economies, as suggested in OECD, 2010). Data presented in Eichengreen and ORourke
(2010) show that it may have en plus reversed other trends, including globalisation and
trade globalisation itself (see Figure 1). Indeed, confirming the above trend, Araujo and
Martins (2009) note that the relevant negative trade flows reached a record low of 33% in
March 2009. Fifth, since the 1990s two parallel processes are in force. On the one hand,
the multilateral pursuit of free trade encouraged by the World Trade Organisation (WTO).
On the other hand there has been a remarkable increase of regional trade agreements
(RTAs). From the 141 RTAs in force in 2005, 25 have been introduced in the period 1958
1989 and 116 in the period 19902005 (see Crawford and Fiorentino, 2005). Bhagwati
(2000), the free trade and globalisation proponent, considers the RTAs as stumbling
blocs to the multilateral focus of the WTO and attacks the Clinton administration for
pursuing RTAs. Finally, arguments exist that the new regionalism of the 1990s is different
from the 1950s and 1960s. For example, Ethier (2001) suggests that direct investment,
economic reforms and political economy concerns are more prominent features of regional
integration as compared to the traditional trade-creation versus trade-diversion scheme.
This paper extends and advances the analysis of CP in a number of ways, providing
evidence to the relative intensity of globalisation versus regional forces in international
trade flows. First, we extend the sample to include the recently updated Penn World Tables
data, which go up to the end of 2007. The extended sample allows us to examine the
globalisation and regionalism trends during the recent golden era of globalisation, i.e.

Trade flows and globalisation

483

when the political and ideological underpinnings of pro-globalising forces reached their
pinnacle. Moreover, we produce new evidence on the convergence of regional versus global
trade flows in the de-globalisation context of the early millennium and the crisis that
produced the great recession. In this short rejoinder we provide a re-examination of the
empirical evidence on the extent of openness convergence.

2. Global and regional convergence of economic openness

2.1 Data considerations
The formal analysis of CP uses a set of convergence criteria adopted from growth
empirics to test statistically for the relative speed of global versus regional trade-openness
convergence. The results of the econometric analysis show that in the period 19601992
the gap between more open and less open economies tends to close faster within regions
rather than across the global economy. Indeed, this particular trend is more pronounced in
the region of Europe. Casual evidence shows that in the period subsequent to that
considered by CP, intra-regional trade increased in almost all regions during the 1990s and
the 2000s while the extra regional export remained constant in Europe, North America
and Africa (see Tables 1 and 2). The new tiger states in Asia and Latin America (China,
India, Brazil, etc.), on the other hand, seem to have increased trade either amongst
themselves or with other regional partners.
In this paper we reconsider the propositions as in the CP contribution using the data of
the Penn World Tables (version 6.3), which became available in 2009. This is a considerably more extensive sample as compared to the sample that was available when the
evidence of CP was produced and cited. Not only has the number of countries increased
dramatically (188 countries) but also the time series is extended to more recently: 2007 to
be precise.3 The CP sample contains fewer countries and the proportion of OECD
members contained within it is relatively high. In the present paper the European sample
consists of a larger number of countries since it now includes the economies of Central and
3
A detailed list of the countries considered in the present study and in the CP paper, along with their
geographic classification and groupings, are available from the authors upon request.

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Fig. 1. Volume of world trade. Source: Eichengreen and ORourke (2010).

484

P. Arestis et al.

Table 1. Intra regional exports as percentage of GDP

1990

2000

2006

18
3.2
6.2
2.2
3.9
1.5

15.7
3.4
7.7
2.4
2.2
1.7

21.8
6.1
11.2
2.1
4.1
3.1

23.6
5.9
17.4
4.5
5.0
3.4

Source: World Bank (various issues); IMF (various issues).

Table 2. Extra regional exports as percentage of GDP

Europe
North America
Asia-Pacific
Middle-East
Latin America
Africa

1980

1990

2000

2006

6.1
6.2
9.6
44.3
12.3
29

5.0
4.9
9.5
25.6
10.2
19.6

7.5
4.9
10.8
32
10.4
26.5

7.6
5.0
14.7
47.2
16.7
26.0

Source: World Bank (various issues); IMF (various issues).

Eastern Europe. Nevertheless, the data series for some of these countries is truncated
because they start only in 1990.
Table 3 describes the number of countries by geographic region and the corresponding
regional codes in the Penn World Tables (v6.3). Our focus is on the typical openness
indicator as provided by the Penn World Tables, which is exports plus imports as
percentage of real GDP. We also consider a measure of aggregate output, namely per capita
gross domestic output adjusted for changes in the terms of trade (RGDPTT), which is
measured in constant 2005 international prices. The procedures used to construct the data
are discussed in Summers and Heston (1991) and Heston et al. (2009).

2.2 Unconditional convergence in openness

We use the convergence tests initially developed by Barro (1991) to examine convergence
or divergence of per capita income and openness levels across countries or regions. We first
provide an analysis of unconditional convergence in trade openness modifying the
econometric specification for b-convergence suggested by Barro and Sala-i-Martin
(1991, 1992) as follows:


1 2 e 2 bop T
1
lnopit =opit 2 T 5 aop 2
lnopit 2 T 1 vit
1
T
T
where opit and opit2T are country is percentage of openness at time t and at time tT,
respectively; aop is the intercept, bop is the rate of convergence parameter and vit is the
disturbance term. In this specification a positive value of bop implies convergence and
a greater value of bop corresponds to a faster convergence rate.

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Europe
North America
Asia-Pacific
Middle-East
Latin America
Africa

1980

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485

Table 3. Geographical grouping of countries

Geographic Region

No of countries

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15

Africa, West
Africa, Central
Africa, East
Africa, South
North Africa and Middle East
America, North
America, South
Caribbean
Asia, Central
Asia, East
Asia, Southeast
Asia, SouthWest
Europe, Eastern
Europe, Western
Oceania

19
8
11
9
17
9
12
16
9
8
11
9
5
35
12

Source: Penn World Tables (version 6.3); Heston et al. (2009).

The results for global and regional unconditional convergence for openness are provided
in Tables 4 and 5. In particular, Table 4 reports the b coefficients of openness convergence
at the global level and within different regions. We obtain estimations for the full sample
(19652007) and then we break it into the period analysed by CP (19651992) and the
period covered by the Penn World Tables data that emerged afterwards (19922007).
Moreover, we break the sample into shorter, five-year, sub-periods to capture shifts in the b
coefficient. The results show that the degree of openness at a global level has been
consistently converging, though with smaller coefficients in the new millennium. Thus,
strong evidence exists for openness convergence in the global economy up to 2000.
Openness at the regional level also shows strong evidence of convergence. An increase in
the degree of openness is apparent in the 1990s, which is present in all regions but appears
to be stronger in Central and South West Asia. The speed of convergence is reduced after
2000 and even more after 2005 with Western Europe experiencing lack of convergence.
This weakening of the relationship possibly reflects the build-up of the global financial
crisis or it may be an artefact of the shorter sample length (two years).
Table 5 presents the summary results of period-by-period (five years) regressions during
the time span 19652007.4 Figure 2 shows the convergence statistics for unconditional
openness during the period 19652007. The numbers indicate the b coefficients (i.e. speed
of annual convergence in percentage terms). The results presented are based on a five-year
lag scheme. The thick solid line shows convergence of openness at the global level, which
seems to stay at low levels from the mid-1970s to the end of the 1980s. Convergence in
openness intensifies in the 1990s and weakens in the early millennium. The same pattern is
shared by East and South East Asia, the Americas and most prominently by Europe. This is
the period of the run-up towards the Economic and Monetary Union (EMU), when all
prospective members intensified their efforts to achieve convergence and create a common
4
The detailed analytical results for this and the following sections are available, in the form of an
Appendix, from the authors upon request.

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Regional Code

486

Periods

Regional
convergence
in Europe
(40 countries)
b

19652007
19651992
19922007
19651970
19701975
19751980
19801985
19851990
19901995
19952000
20002005
20052007
20002007

0.0234*
0.0265*
0.0171*
0.0312*
0.0177*
0.0075*
0.0225*
0.0678*
0.0250*
0.0225*
0.0071*
0.0190*

0.0279*
0.0196*
0.0394*
0.0013
0.0416*
0.0155*
0.0034*
0.0207*
0.1141*
0.0355*
0.0083*
0.0020
0.0078*

Global
convergence

Regional
convergence in
East and Southeast
Asia and Oceania
(31 countries)
b

Regional
convergence in
Central and South
West Asia
(18 countries)
b

Regional
convergence in
North Africa and
Middle East
(17 countries)
b

Regional
convergence in
Africa (excl North)
(28 countries)
b

Regional
convergence
in Americas
(37 countries)
b

0.0248*
0.0063*
0.0346*
0.0082*
0.0183*
0.0110*
0.0026
0.0223*
0.0723*
0.0184*
0.0211*
0.0132*
0.0149*

0.0124*
0.0254*
0.1004*
0.0002
0.0292*
0.0504*
0.0341
0.0327*
0.2247*
0.1353*
0.0372*
0.0434*
0.0276*

0.0463*
0.0600*
0.0349*
0.0340**
0.0636*
0.0253*
0.0478*
0.0114
0.0631*
0.0207*
0.0717*
0.0650*
0.0630*

0.0290*
0.0368*
0.0164*
0.0695*
0.0431*
0.0248*
0.0011
0.0083*
0.0292*
0.0003
0.0139*
0.0082*
0.0137*

0.0193*
0.0120*
0.0344*
0.0124*
0.0076*
0.0103*
0.0092*
0.0266*
0.0428*
0.0326*
0.0453*
0.0148*
0.0354*

Statistically significant at the *5% and **10% levels, respectively.

P. Arestis et al.

Table 4. Global and regional unconditional convergence for openness 19651007 (beta coefficients)

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Table 5. Convergence statistics for unconditional openness 19652007

Global
convergence
(CP sample)

Regional
convergence
in Western
Europe

Regional
convergence
in Europe

40

27

29

28

Regional
convergence
in East and
Southeast Asia
and Oceania
30

Regional
convergence
in Central
and South
West Asia
24

Regional
convergence
in North Africa
and Middle East

Regional
convergence
in Africa
(excl North)

Regional
convergence in
the Americas

26

27

31

Notes: The numbers indicate the years (out of the total of 42 years) that the beta coefficients (i.e. speed of convergence) is positive and statistically significant at the 5%
or 10% levels. The lags are five years. CP sample refers to the analysis of Chortareas and Pelagidis (2004).

Trade flows and globalisation

Global
convergence

487

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488

P. Arestis et al.

institutional framework. Mongelli et al. (2005) provide preliminary evidence, from

Granger-causality and variance decompositions based on a vector error correction model,
for a causal link between institutional integration and trade deepening that runs both ways.

2.3 Convergence to the leader

It is clear that tests of unconditional convergence implicitly assume that the countries
included in each (global or regional) group share the same steady state. Running
convergence tests on a country-by-country basis we acknowledge that each country is
characterised by its own steady state. We do not attempt to inquire into the determinants of
possible different steady states. However, to account for the latter possibility, we focus on
whether the degree of openness converges to that of the most open countries globally and/
or regionally. The econometric specification used to test for b-convergence in trade
openness (op) to the leader is:




1 2 e 2 bop T 
1
lnopit =opit 2 T 5 aop 2
2
lnopit 2 T 2 ln opLopit 2 T 1 vit
T
where opit and opit2T are country is openness index at time t and at time tT, respectively;
aop is the intercept and bop is the rate of convergence parameter. Again, a positive value of
bop implies convergence and a greater value of bop corresponds to a faster convergence rate.
The variable, opL(op)it2T is the leader-country at time tT in terms of openness. Finally, vit is
the disturbance term. Choosing a leader country, however, is not always without perils.
The natural response to this question, when one estimates the convergence of the openness
indicator, would be to treat the most open country as the leader. Indeed, the economies
intending to open up are more likely to seek partnership with other already open
economies. One problem, however, is that the highly open economies, which are defined
as the leader are typically very small and even outliers. Thus, we consider an additional
specification, which assigns the role of the leader to the country with the highest real GDP
per capita adjusted for terms of trade which is (opL(y)it-T) as in equation (2).

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Fig. 2. Convergence statistics for unconditional openness 1965-2007. The numbers indicate the beta
coefficients.

Trade flows and globalisation

489





1 2 e 2 bop T 
1
lnopit =opit 2 T 5 aop 2
lnopit 2 T 2 ln opLyit 2 T 1 vit
T

Table 6. Openness convergence to the global and/or regional leader: beta coefficients (i.e. speed of
convergence)
Openness
convergence to the
GDP leader

Openness
convergence to the
openness leader
Period

Global

Regional

Global

Regional

19652007
19651992
19922007

70
33
91

4
30
60

69
20
23

31
25
44

Note: The numbers indicate the countries for which the beta coefficients (i.e. speed of convergence) is
positive and statistically significant at the 5% or 10% levels.

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We consider equations (2) and (2) for every country to test for convergence to the global
leader and the regional leader. This exercise is repeated for three periods: first, for the full
sample (19652007); second, for the period analysed by CP (19651992) and finally for
the most recent period (19922007). In Europe, and for the pre-1999 period, two
countries converge to the global leader and three to the regional leader; for the post-1992
period, however, three countries converged to the global leader and 13 to the regional
leader. This is strong evidence supporting the view of Kleinknecht and Wengel (1998) and
Hirst et al. (2009), who suggest that the dominant force in Europe is not globalisation but
Europeanisation. The results are also consistent with the semi-regionalisation trade
flows trend identified by Frankel (1997) and Wei (1996). Strong evidence of dominating
regional forces emerge for Africa, where the number of economies converging to the
regional leader almost quadruples, while the number of economies converging to the global
leader less than doubles across the two periods. In the Americas, which consist of North
America, South America and the Caribbean, three and five countries converge to the global
leader and regional leader, respectively, in the pre-1992 period. However, the corresponding numbers in the most recent period are five and nine, thus confirming the regional
dominance view. The results are less conclusive for Asia and Oceania and for North Africa
and the Middle East.
The key results, however, are summarised in Table 6. The latter table provides the
results from equations (2) and (2), showing convergence in openness against the regional
and global leader. In particular, we report how many countries exhibit a positive and
statistically significant b coefficient of convergence towards the global and/or regional
leader. When the leader is defined in terms of openness, we observe that converge of
openness in 19922007 as compared to 19651992 has almost tripled at the global level
and doubled at the regional level. This is consistent with the removal of tariff and non-tariff
barriers and the advancement of institutional changes in the world economy (WTO).
Thus, both regionalism and globalisation forces are at work but the latter are more
prominent.
When the leader is defined in terms of per capita output the evidence of global
convergence appears less pronounced, with the number of countries converging to the

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P. Arestis et al.

Both equations (2) and (3) consider the same leader, which is in terms of GDP. In other
words we compare the rate of convergence of openness versus the rate of convergence in
per capita GDP for any given (global or regional) group of countries using the GDP leader
as a benchmark. It is clear from Table 7 that openness convergence is not as pronounced as
GDP convergence across the two periods considered.

2.4 Discussion of the results

Our results point to a mixed picture. First of all, the pivotal role of regional forces in the
globalisation of trade flows is shown to be important and in agreement with what
Kleinknecht and Wengel (1998), as well as Hirst et al. (2009), have suggested. The findings
also corroborate the earlier findings of CP. Nevertheless, in the period examined by CP
regionalism emerges as the dominant force through which globalisation materialises.
From the 1990s the globalisation force is picking up a faster pace as compared to
regionalism. Actually this should not be surprising since the 1990s was a period
characterised by pro-market institutional reforms with the support of the Washington
consensus and the ideological dominance of economists and policymakers with almost
religious allegiance to the market forces. From this point of view, what is actually
remarkable is the resilience of regionalism. Although globalisation dynamics are more
prominent, the regionalism trend does not cave in. The interesting question is whether
the resilience displayed by regionalism forces can lead to a de-globalisation context. The
surge in globalisation suggested by the faster rate of trade flows convergence at the global
Table 7. Openness and GDP convergence to the global and/or regional GDP leader: beta coefficients
(i.e. speed of convergence)
Openness convergence
to the GDP leader

GDP convergence
to the GDP leader

Period

Global

Regional

Global

Regional

19652007
19651992
19922007

69
20
23

31
25
44

49
22
59

41
13
58

Note: The numbers indicate the countries for which the beta coefficients (i.e. speed of convergence) is
positive and statistically significant at the 5% or 10% levels.

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global leader increasing only marginally across the two periods (from 20 to 23). However,
the number of countries whose openness converges to that of the regional leader in 1992
2007 increases substantially, to 44 from 25 in the period 19651992.
Another simple approach to testing for the intensity of the globalising forces in trade
flows is to compare the relative degree of convergence between the globalisation/
regionalism indication and the degree of convergence of a benchmark variable, namely
real per capita GDP. Table 7 reproduces the results of openness convergence and compares
them with the results of per capita GDP convergence. In other words, we compare the
results of equation (2) to those obtained from the following specification:


1 2 e 2 by T
1
lnyit =yit 2 T 5 ay 2
lnyit 2 T 2 lnyLit 2 T 1 vit
3
T

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491

3. Summary and conclusions

An interpretation of the globalisation process has been proposed suggesting that what
analysts perceive as a pure globalisation process is actually materialised through regional
integration. Elaborate explanations of globalisation along these lines include those of
Kleinknecht and Wengel (1998), Hirst et al. (2009) and Thompson (2011). Chortareas
and Pelagidis (2004) corroborate such a view by providing empirical evidence that trade
flows are predominantly driven by regional rather than global forces. Their sample,
however, does not extend beyond 1992. In this paper we revisit the analysis of CP using the
recently released Penn World Tables that extend up to 2007 and cover the period in which

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level tends to subside in the new millennium. This is not surprising given the strains of the
global financial crisis. As can be seen in Figure 1, the collapse of global trade since 2008 has
been severe and dramatic, even compared with that of the great depression. Indeed, the
trade globalisation backlash is certainly not restricted to flows of goods alone. The increase
of global capital movements since the early millennium, which fuelled globalisation,
evaporated in just a few months after the eruption of the financial crisis in August 2007
(Eichengreen and ORourke, 2010). That close of the gap in global cross-border flows
implies also a similar close of the gap between trade surplus and trade deficit countries,
a fact that also implies less trade globalisation in general. Moreover, there exists evidence
showing that the retrenchment of trade flows is remarkably synchronised among countries.
Araujo and Martins (2009), for example, observe that the phenomenon of synchronised
reduction in trade flows characterises 90% of OECD countries over the last 10 years. The
current episode is the first with so much synchronisation in trade flows decline. It is thus
likely that a de-globalisation process has restarted since the second half of 2007, a fact that
may test again the results of our paper that considers the period up to 2007.
Another key issue at hand is whether the disintegration of trade flows that parallels the
current world recession that erupted in the second half of 2007 is a de-globalisation or a deregionalisation process in nature. That is, whether this indisputable reduction in international trade volume is primarily of a global or of a regional nature. If the de-globalisation
process materialises, then an interesting question emerges, which is whether this process
is symmetrical to the pattern identified by Kleinknecht and Wengel (1998), CP, and
this paper. In other words, would a de-globalisation process also give rise to a deregionalisation process or would it provide a further encouragement to regionalism? Given
the existing global institutional framework, as defined by the WTO, countries under strain
may have a stronger incentive to free-ride by deepening integration at the regional level.
Freund (2000) develops a model showing that when multilateral tariffs are low, RTAs
become more attractive. Krugman (1993) also emphasises the regionalism forces
pertaining to non-tariff issues. Such arguments hint to the possibility that if disintegration
of global trade flows occur, then regional integration is likely to deepen further. This is, of
course, a matter that only future research can tackle.
Of course it would be nave to expect a verdict on globalisation and regionalism forces
based on one or another set of empirical evidence. Nevertheless, producing solid empirical
evidence can complement the qualitative arguments, especially on such complex issues.
Moreover, we are aware that globalisation is itself a fundamentally uneven process as both
economists and geographers point out. Thus, one should not expect a symmetric and
smooth convergence process and the evidence produced on the issue can only be indicative
rather than definitive.

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P. Arestis et al.

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globalisation is supposed to have reached remarkable levels. This trend is concurrent with
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ones, which are more likely to disintegrate.

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