Globalisation, digitalisation and the green transition

Posted April 5, 2022

Forklift operator Rahime Yiğit works at a construction equipment warehouse in Turkey. Photo: UNDP Turkey / Levent Kulu

Beata Javorcik is the chief economist at the European Bank for Reconstruction and Development (EBRD). In advance of her Kapuscinski Development Lecture she spoke about how globalisation may be affected by some recent trends, such as the return of this state during the pandemic green transition and the geopolitical turmoil.

There was a lot of talk at the beginning of the pandemic about the idea of recovery, especially around green solutions. Do you feel like so much time has passed since the beginning and those ideals, that this is not even a reality anymore?

The desire to build back better is still with us. However, attention has been diverted because of the recent events. But these events will also play a role. For instance, on the one hand, the war in Ukraine may provide an impetus for green transition, and may encourage investment in renewables. On the other hand, recent changes to gas prices have made coal cheaper, relatively to natural gas in Europe, so the addiction to coal may continue.

Nevertheless, I hope that we will not lose track of the goals we have set out.

The green transition was on the minds of policymakers before COVID, but COVID has sped up the process because large amounts of money have been mobilised to promote post-COVID recovery. And there has been a realization that the current spending is perhaps once-in-a-generation spending in terms of its volume, and therefore the money needs to be used wisely. And the money needs to be used in a way that promotes future growth, and in particular future growth that will be sustainable and climate friendly.

COVID showed us that there were no borders when it came to the spreading of diseases. So when you're speaking of globalisation, which also blurs borders in that we have access to everything all the time now, is it possible to have true economic recovery when so many countries are still suffering from COVID and still have yet to recover on the health front first?

Obviously, the COVID pandemic is not over, and the economic recovery has been weakened by the arrival of new strains. In many countries, governments have adopted emergency measures aimed at protecting firms from creditors, so we have not seen a full fallout from the pandemic yet. For instance, in emerging Europe the number of firms going bankrupt was lower last year than in the years before the pandemic. A slowdown in recovery will be accompanied by an increase in non-performing loans and an increase in the number of firms going out of business.  Moreover, most countries are emerging from the pandemic more indebted, which combined with interest rate hikes will increase the cost of servicing debt, putting a strain on public finances and a limit on government spending in other areas.

The war in Ukraine is another major shock to the world economy, and its impacts are already being felt across the globe, from Polish municipalities trying to deal with a huge influx of refugees to the Middle East and Africa where people are facing much higher food prices to American farmers seeing much higher cost of fertilizers.

Does digitalisation matter for international trade and within country inequity?

Digitalisation creates new opportunities, but also poses new challenges. It lowers the costs of gathering information and allows firms to access new markets, both at home and abroad. This is particularly important for small- and medium-sized enterprises, for whom the cost of obtaining such information in the absence of fast internet access may be prohibitive.

Access to digital infrastructure allows individuals to work from home. It was quite striking that during the pandemic the share of people working from home in emerging Europe was similar to that found in advanced economies. Surveys show that workers enjoy working from home and view the ability to do so as equivalent to a pay rise, and on average they’re no less productive when working from home.

But digitalisation also poses challenges. The fact that some parts of the world or some regions within countries are falling behind in terms of digital infrastructure and digital skills means that firms in those places will be disadvantaged when it comes to taking advantage of opportunities offered by export markets. Within countries, there are also huge differences between various groups in terms of digital skills. People who are less educated, those on lower incomes, those living in rural areas as well as those above 55 years of age have much lower digital skills. As structural transformation of the economy progresses due to digitalisation, there is a real danger that they will be left behind.

How can policies to combat climate change affect the cross-border flows of goods?

In the future, green credentials will become an important aspect of countries’ competitiveness. And in particular, access to renewable energy sources will be vital for attracting foreign direct investment and making countries attractive as a manufacturing base.

Consumers are looking for products that have been produced in sustainable way, and such products often carry a price premium. This in turn induces firms to choose locations where it is possible to produce goods in a sustainable way. On top of that, European Union has proposed a carbon border adjustment mechanism, which would involve a carbon tax being paid on imports coming into the European Union - this tax would be reduced or waived, depending on the carbon content of products that are being traded.

Tune in to Beata Javorcik’s Kapuscinksi Development Lecture on 6 April, hosted by the Gothenburg School of Economics.