The author of the book, Richard Baldwin has clearly pointed out that as the GDP share is shifting from G7 countries to few developing countries we are facing a new kind of globalization. This has caused the economic disruption among the G-7 and economic cohesion in emerging markets, with flourishing middle classes in these economies. He then guides the readers through a thought experiment: “what if globalization was about knowledge flows instead of trade flows?” These knowledge flows from ‘headquarter economies’ to ‘factory economies’ could have been opened in the 1990s, and would have led to increased growth among the latter.
In Baldwin’s conceptualization, globalization is constrained by trade costs (moving goods), communication cost (moving ideas), and face-to-face cost (moving people). With diminishing trade cost since the 19th century, the markets have expanded while innovation has clustered in the headquarter economies – constrained by communication costs, resulting in an imbalance in know-how which could be termed as great divergence between the developed and developing countries.
