ABSTRACT

The term globalization is used rather ambiguously. It is used in the positive sense to point at the increased international integration of trade, investment and finance; it is also employed in the normative sense to denote a reaction to increased integration, and the policies that follow from there (Nayyar 1997). Globalization and openness are not new phenomena. The period before the First World War offers parallels to the present day in terms of a highly integrated world economy measured by a high degree of international trade, foreign direct investment (FDI), as well as financial flows (portfolio investment and direct lending to banks and governments). During the inter-war period this highly globalized economy became inward looking and the process of globalization was reversed. Since about 1960 the barriers to globalization have once again been dismantled. This was often a slow process, and many developing countries chose not to participate, at least initially. International trade was the first to be liberalized. FDI followed suit, and finally it was the turn of financial flows. Milanovic (1999) argues that the present phase of globalization began at a date well after 1960, as at that time at least a quarter of the world’s population lived under socialist systems. Globalization, therefore, requires the capitalist economic system to be almost ubiquitously present. A convenient date to mark the commencement of the present era of globalization could be circa 1980, following China’s adoption of open-door policies.