Globalization has been a powerful force for economic growth. Research from the McKinsey Global Institute (MGI) finds that the movement of goods, services, finance, data, and people across borders adds to GDP and fuels productivity growth—and China has been one of the world’s major beneficiaries. The nation’s period of double-digit GDP growth in the mid-2000s was fueled by even faster growth in the flow of goods in and out of China. As exports surged from just $257 billion in 2000 to $2.4 trillion in 2016, China became the world’s top exporter.
But while globalization accelerates growth, it also amplifies inequality and disruption. Across 25 advanced economies, some two-thirds of households experienced stagnating or declining income from 2005 to 2014—all while watching the wealthiest few in their countries realize tremendous gains. This growing inequality has spawned a political backlash, with calls for protectionism and immigration restrictions gaining traction in many countries. This path could have damaging consequences in a world still struggling to jump-start growth.
Policy makers are now being challenged to preserve the benefits of globalization while addressing its negative externalities. Although inequality is a largely a question of domestic policy, there is also work to be done at the international level. The world needs to bring new urgency and innovation to the task of helping workers adjust to fast-moving labor-market shifts, whether caused by foreign competition or automation technologies. Additional priorities include broadening participation in the digital economy, launching infrastructure projects that can boost global demand and productivity, and improving global governance of cross-border investment and digital flows. Innovations fostered in one part of the world need to make their way to the broader global populations who stand to benefit.