The Causes of Globalization

Abstract

The most important causes of globalization differ among the three major components of international market integration: trade, multinational production, and international finance. The information technology revolution has made it very difficult for governments to control cross-border capital movements, even if they have political incentives to do so. Governments can still restrict the multinationalization of production, but they have increasingly chosen to liberalize because of the macroeconomic benefits. Although the one-time Ricardian gains from freer trade are clear, whether trade is good for growth in the medium term is less certain. In the case of trade, the increasing interest of exporters in opening up domestic markets has had a powerful impact on the trend to liberalization. Cross-national variations in market integration still endure, but these are more the product of basic economic characteristics (such as country size and level of development) than political factors (such as regime type or the left-right balance of power).