The world is getting more disconnected if you focus on global capital flows. Global capital flows outstrip movement in trade, so it is a strong signal of globalization. These flows are what moves savings around the world from creditors to debtors. The numbers are showing a sea change in financial behavior. Kristin Forbes of the BOE gave a good speech on "Financial Globalization" and the implications for global finance. It tells s tory of global financial world in transition.
Pre-financial crisis, the capital flow numbers were on track to represent almost half of GDP. The crisis changed the world with capital staying put or moving back to their home countries. Banks especially retrenched their appetite for global lending. This change is really hitting emerging markets.
Some of this flow slowdown is associated with slower global growth. The decline is also correlated with the fact that rates around the world are at similar levels. But, perhaps most important has been the anxiety about investment risks around the world. In spite of volatility in many markets being low, investor have returned to having a strong home bias. The retrenching for today may lead to more global opportunities of tomorrow; however, right now, financial behavior is reflecting an inward focus and many global investment projects are suffering.
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