Introduction

Globalization is the process of achieving greater interdependence among countries and their citizens. It consists of increased integration of product and resource markets across countries in trade, immigration, and foreign investment—that is, via the international flow of goods and services; of people; and of investments such as equipment, factories, stocks, and bonds. It also includes noneconomic elements such as culture and the environment. It is political, technological, and cultural, as well as economic.

Globalization is not new. It is the intensification and deepening of the process of international interactions. The first and most profound influence or driving force of globalization is technology. Since the Industrial Revolution in Europe of the mid-eighteenth century, technical innovations have led to an explosion of productivity and slashed transportation costs. The steam engine, railways, and mechanization of a growing number of activities produced these developments. Later discoveries and inventions such as electricity, the telephone, the automobile, container ships, and pipelines altered production, communication, and transportation tremendously. More recently, rapid developments in computer information and communications technology have further shrunk the influence of time and geography on the capacity of individuals and enterprises to interact and make transactions around the world. For services, the rise of the Internet has been a major factor in decreased communication costs and increased trade. As technical progress has extended the scope of what can be produced and where it can be produced, and advances in transport technology have continued to bring people and enterprises closer, the boundaries of tradable goods and services have been greatly extended.

Continuing liberalization of trade and investment has resulted from multilateral trade negotiations. For example, tariffs in industrial countries have been brought down from high double digits in the 1940s to about 5 percent in the early 2000s. At the same time, most quotas on trade, excepting those imposed for such reasons as health and safety, have been removed. Globalization has also been promoted through the widespread liberalization of investment transactions and the development of international financial markets. These factors have facilitated global trade through greater availability and affordability of financing.

Lower trade barriers and financial liberalization have allowed more and more companies to globalize production structures through investment abroad, which in turn has provided a further stimulus to international trade.