Internal environment trumps openness policies in global connectivity

Singapore, the world’s most globally connected nation, leads in international flows linked to domestic activities, as per DHL report.

Global connectedness is often associated with a country’s openness to trade and people, but according to an expert, propelling nations to higher levels of connectivity relies on cultivating an attractive domestic environment.

“What [we have found] is that the attractiveness of the country’s environment internally is an even bigger driver of connectedness than the policies about openness,” Dr. Steven Altman, senior research scholar at NYU Stern School of Business and co-author of DHL Global Connectedness Index, told the magazine.

“If a country has a really attractive domestic business environment, companies, investors, [and] individuals will be willing to go over some challenges to get into that country,” Altman said.

The expert, however, underscored that having policies on openness such as immigration policies, tariff policies, and policies on foreign direct investors, still matters a “great deal.”

“Essentially, we want to make sure that the country remains as attractive as it can possibly be and then put facilities that open [it] to the world so that I can achieve the full benefits that come from that attractiveness,” Altman added.

Singapore is amongst the countries not just in the region that has both an attractive domestic business environment and openness policies.

In the 2024 edition of DHL’s Global Connectedness Index, Singapore ranked first, besting 180 markets. The 2024 index compares the level of connectivity of countries between 2022 and 2017.

Countries were scored and ranked based on two dimensions: depth or their international flows relative to total activity; and breadth or the distribution of international flows across countries.

According to the report, Singapore has the largest international flows relative to domestic activity, topping the depth dimension with a score of 99.0/100. On the breadth dimension, Singapore scored 63.5, ranking 25th overall.

Altman said Singapore’s structural characteristics and policies have propelled it to the No. 1 spot in the index.

“Singapore is a relatively small country, it’s a wealthy country and an advanced economy. These kinds of characteristics lead to higher levels of globalisation; but Singapore builds on that very systematically over a long period of history to move forward,” said the expert.

He pointed out how Singapore had laid down the foundations of a strategy to make globalisation a cornerstone of its economic development. “And that strategy has been multifaceted. Everything from the development of infrastructure, the port, the port operations, the trade policies, the foreign direct investment policies,” Altman told the Singapore Business Review.

He also cited the work of the Economic Development Board (EDB) in attracting investment into Singapore. “Singapore has built a set of capabilities to proactively and tragically benefit from globalisation,” he said.

Data from EDB showed that Singapore attracted $12.7b (HK$74b or US$9.46b) in fixed asset investments (FAI) in 2023. The United States, Europe, and Asia were the major contributors to Singapore’s FAI in 2023.

Relatively, in DHL’s report, the United States also had the largest share in Singapore’s international trade flows at 16%, followed by China (12%), Malaysia (8%), India (5%), Japan (5%), Hong Kong SAR (5%), Indonesia (5%), Taiwan (4%), Korea (4%), and United Kingdom (3%).

Balancing global ties

Like any other country, geopolitical tensions remain a threat to Singapore’s level of globalisation. “Singapore is a country that has very important connections, both with the US-centric sphere of countries, as well as with China’s centric sphere of countries,” Altman said.

The NYU expert, however, said that Singapore had always “fervently” resisted any push for the world economy to split into different blocs.

“Our report underscores the fact that the world economy, consistent with what Singapore pushes for, is not currently splitting into rival blocs,” he said

“These tensions do pose challenges. I think that kind of the tightrope that Singapore and many other countries have to continue to walk to try to benefit from globalisation,” he added.