Meeting the Challenges of Globalisation

Globalisation may be defined as the increasing interaction among, and integration of, the activities, especially economic activities, of human societies around the world. As dramatised by the demonstrations at the World Trade Organisation (WTO) meeting in Seattle in December 2001, globalisation is a controversial issue. While many see clearly the enormous benefits of an increasingly integrated global economy and society, others focus primarily on its harms and dangers. In this paper, I want to discuss the issue of globalisation, with particular but not exclusive emphasis on its economic dimension. As background for this discussion, I will start by mentioning briefly the broader history of globalisation beyond its purely economic dimension. Then, to provide some human interest to a subject usually discussed with dull economic theories and dry empirical studies, I want to tell you the story about how globalisation affected my grandfather. This will be followed by a discussion of economic globalisation that results from increasing integration through international trade -- a process that is generally seen as bringing important improvements in human welfare. Next comes a discussion of the effects of economic globalisation through integration of capital markets -- where the benefits of globalisation are somewhat more ambiguous, but where technological change and revealed preference indicate that globalisation will continue and its pace may well accelerate. From the effects of recent financial crises, the main concern with globalisation through capital market integration appears to be the instability of international capital flows, especially flows to emerging market economies. This problem is the next subject and here I shall argue that policies are available to reduce risk of, and limit the damage from, instabilities in international capital flows. Implementation of these policies, which are generally desirable in their own right, is the desirable approach to contain the dangers and achieve the potential benefits from what looks to be an inevitable process of increasing capital market integration. Copyright 2003, Oxford University Press.