The Global Office

This paper posits that the focus of globalisation has transitioned from manufacturing Global Value Chains (GVCs) to services GVCs, marking a shift from the Global Factory to the Global Office. Despite the Factory still boasting larger gross trade, the Office is expanding at a significantly faster rate. A visual representation of trade in intermediates reveals that the Factory is concentrated in blocs, primarily China, while the Office is concentrated in stars, primarily the United States.

Studies employing gravity estimates indicate that distance has less impact on Office exports, but time zones have a more significant impact: each hour of time-zone separation reduces Office exports by approximately 4%, with no effect on Factory exports. Crucially, all export-linked net job creation worldwide between 2008 and 2022 has been in digitally delivered services, as opposed to manufacturing.

Trade-linked service jobs globally also generate higher average wages. This Factory-to-Office transition is reshaping development as well. Most emerging economies have witnessed their export-led growth shift towards services, although their service exports are not yet substantial enough to drive overall GDP growth, as was the case with manufacturing historically.

The overarching theme is that the second unbundling of globalisation is slowing, while its third unbundling is accelerating. The paper, authored by Richard Baldwin and published as a NBER working paper, concludes that the future of trade lies in services.