Globalization

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Markets promote efficiency through competition and the division of labor – the specialization that allows people and economies to focus on what they do best. Globalization offers greater opportunity for people to tap into more and larger markets around the world. It means that they can have access to more capital flows, technology, cheaper imports, and larger export markets. Markets do not necessarily ensure that the benefits of increased efficiency are shared by all. Countries must be prepared to embrace the policies needed, and in the case of the poorest countries may need the support of the international community as they do so. Globalization is not just a recent phenomenon. Some analysts have argued that the world economy was just as globalized 100 years ago as it is today, but today commerce and financial services are far more developed and deeply integrated than they were at that time. The most striking aspect of this has been the integration of financial markets made possible by modern electronic communication.

The story of the 20th century saw unparalleled economic growth, with global per capita GDP increasing almost five-fold. This growth was not steady – the strongest expansion came during the second half of the century, a period of rapid trade expansion accompanied by trade – and typically somewhat later, financial liberalization.

In the inter-war era, the world turned its back on internationalism – or globalization as we now call it – and countries retreated into closed economies, protectionism and pervasive capital controls. This was a major factor in the devastation of this period, when per capita income growth fell to less than 1 percent during 1913-1950. For the rest of the century, even though population grew at an unprecedented pace, per capita income growth was over 2 percent, the fastest pace of all coming during the post – World War boom in the industrial countries.

Globalization means that world trade and financial markets are becoming more integrated. Just how far have developing countries been involved in this integration? Their experience in catching up with the advanced economies has century was of remarkable average income growth, but it is also quite obvious that the progress was not evenly dispersed. The gaps between rich and poor countries, and rich and poor people within countries, have grown. The richest quarter of the world’s population saw its per capita GDP increase nearly six-fold during the century, while the poorest quarter experienced less than a three-fold increase. Income inequality has clearly increased, but per capita GDP does not tell the whole story.

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