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by Michael Mussa
Economic Counselor and Director of Research
Presented in Jackson Hole, Wyoming
at a symposium sponsored by the
Federal Reserve Bank of Kansas City
on “Global Opportunities and Challenges,”
August 25, 2000

The views expressed in this paper are those of the author and do not reflect those of the IMF.

Interactions Among the Fundamental Factors Driving Economic Integration
Human Migration
Trade in Goods and Services
International Capital Movements and Trade in Financial Services
The Particular Importance of Communications
A Reversal in the Trend of Increasing Global Economic Integration?
The End of Empire

United States Immigration: Total
United StatesImmigration as a Percent of Resident Population
United States: Exports of Non-Factor Services
Japan Premium
Financing Conditions for Emerging Markets
Net Flow of Investment to Developing Countries
The Internet Slashes the Cost of Transactions
Contraction of World Trade, 1929-33

Regional GDP per Capita
Emerging Market Economies: Net Capital Flows


Global economicintegration is not a new phenomenon. Some communication and trade took place between distant civilizations even in ancient times. Since the travels of Marco Polo seven centuries ago, global economic integration—through trade, factor movements, and communication of economically useful knowledge and technology—has been on a generally rising trend. This process of globalization in the economic domainhas not always proceeded smoothly. Nor has it always benefited all whom it has affected. But, despite occasional interruptions, such as following the collapse of the Roman Empire or during the interwar period in this century, the degree of economic integration among different societies around the world has generally been rising. Indeed, during the past half century, the pace of economicglobalization (including the reversal of the interwar decline) has been particularly rapid. And, with the exception of human migration, global economic integration today is greater than it ever has been and is likely to deepen going forward. 1

Three fundamental factors have affected the process of economic globalization and are likely to continue driving it in the future. First, improvements in thetechnology of transportation and communication have reduced the costs of transporting goods, services, and factors of production and of communicating economically useful knowledge and technology. Second, the tastes of individuals and societies have generally, but not universally, favored taking advantage of the opportunities provided by declining costs of transportation and communication throughincreasing economic integration. Third, public policies have significantly influenced the character and pace of economic integration, although not always in the direction of increasing economic integration.

These three fundamental factors have influenced the pattern and pace of economic integration in all of its important dimensions. In particular, this paper discusses three important dimensions ofeconomic integration: (1) through human migration; (2) through trade in goods and services; and (3) through movements of capital and integration of financial markets. After examining how fundamental forces have influenced economic integration in these dimensions, the paper concludes with reflections on three issues of general importance to the future course of global economic integration: theimportance of communication as an influence on integration; the possibility that we may see a sharp reversal in the general trend of increasing integration, as occurred in the interwar period; and the apparent end of imperialism as a mechanism of integration. Before turning to this agenda, however, it is important to emphasize a key theme that will recur in subsequent discussion: the main factors that...
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