Introduction

• Globalization is a defining feature of the contemporary world, significantly shaping the economic trajectories of nations.

• Many nations, including India, face the massive challenge of development and improving the general standards of living of their people.

• The key question is how the globalization process enables or constrains meeting this challenge.

Meaning of Globalisation and Perspectives

• Globalization or economic globalization is used to describe a process as well as a phase of the world economy characterized by that process.

• Globalization is a process of increased integration between the economies of different countries.

• This integration involves increased movement of products, capital, labour, and technology across political borders.

• The period since 1973 is considered the age of Globalization, with some considering the post-World War II period as part of it.

• Contemporary Globalization is often seen as a second wave, with increased economic integration before World War I (1914).

• Since the 1970s, globalization has been facilitated by the increasing openness of economies to cross-border flows, replacing government controls with liberalization.

• The extent of cross-border flows of goods and services depends on the degree to which governments of concerned countries permit them.

• Governments can restrict or permit cross-border interactions based on economic, political, and other considerations, leading to closed or open economies.

• Completely closed or open economies are extremes; economies are generally in between these two.

• Cross-border flows of products, capital, labour, and technology do not require complete openness, and the scale of these transactions depends on several factors.

• World trade contracted in the global crisis without a change in openness, whereas the post-Second World War period saw rapid growth in world trade.

• From 1950 to 1973, world trade grew at 8.2% per annum, while from 1974 to 2007, it grew at 5% per annum.

• The degree of openness of a country is significant for its economic interaction with the world.

• A more closed economy has a more autonomous dynamic, while an open economy is influenced more by external factors.

• As an economy becomes more open, its autonomy decreases, and the influence of external factors increases.

• When all or most countries simultaneously become more open, they transform the global context and create a more closely integrated world economy.

• Openness leads to the integration of national economies, making the world economy the arena for processes that affect all countries.

• Globalization is more than large-scale international economic transactions; it also involves improvements in transport and communication technology.

Dimensions of Globalisation

• Globalization is an adjective attached to many things, encompassing more than just economic globalization.

• The increasing economic integration of the world’s economies under globalization has multiple layers and dimensions.

• Transnational or multinational firms play a central role in the economic integration of global economies.

• Three important globalizations are contained within contemporary globalization.

Globalization of Financial Markets

• The first aspect of globalization is the globalization of financial markets, which became more prominent since the early 1990s.

• Capital flows are of two kinds: portfolio capital and foreign direct investment (FDI), each distinguished by their purpose and economic significance.

• Portfolio capital seeks profit through investments in financial assets like loans, equity shares, or government bonds.

• Financial assets can be acquired either at the time they are issued (primary market) or through purchase from an existing holder (secondary market).

• Profits from financial assets can be in the form of payments like interest or dividends, or from selling at a higher price (capital gains).

• The era of globalization has seen large volumes of portfolio capital, running into billions of dollars, moving freely across the world in search of profitable investments.

• Financial firms, such as banks and other institutions with global reach, facilitate the movement of this capital.

• Capital account and financial sector liberalization have created the conditions for this globalization, characterized by short-term speculative capital seeking quick, large profits.

• Portfolio capital is referred to as ‘hot money’, with high volatility and rapid movement across countries.

• Foreign direct investment (FDI) involves investment in real assets where profits are earned by producing goods and services for sale.

• FDI is typically guided by long-term considerations and does not move as quickly as portfolio capital.

• Private equity capital shares features of both portfolio capital and FDI, with the goal of increasing the value of shares in the short term before selling.

• Volumes of cross-border portfolio capital flows have been considerably greater than FDI flows under globalization.

• A growing part of FDI consists of private equity flows, which are more akin to speculative portfolio capital flows than traditional FDI.