II B GLOBALIZATION AND TRADE
While there is no universally agreed definition of globalization, economists typically use the term to refer to international integration in commodity, capital and labour markets (Bordo et al., 2003). Using integration in these markets as the benchmark, it is clear that globalization is not a new phenomenon. Since the mid-19th century, there have been at least two episodes of globalization (Baldwin and Martin, 1999). The first episode began around the mid-19 th century and ended with the commencement of World War I (WWI). The second episode began in the aftermath of World War II (WWII) and continues today. In both these episodes of globalization, rapid trade and output growth went together with major shifts in the relative size of the economies involved. One valuable lesson from history is that globalization has not been a smooth process. It has often been marked by periods of accelerated integration (as observed in the 19th century and in the second half of the 20 th century) and by periods of dramatic reversals (as in the inter-war period) sometimes with costly consequences. The two most recent episodes of globalization were characterized by increased integration in trade, capital flows and movement of labour, although there are differences in the importance that each of these elements played in the two episodes (see Table 1).
1. TRENDS IN GLOBALIZATION
International trade after WWII entered a long period of record expansion with world merchandise exports rising by more than 8 per cent per annum in real terms over the 1950-73 period. Trade growth slowed thereafter under the impact of two oil price shocks, a burst of inflation caused by monetary expansion and inadequate macroeconomic adjustment policies. In the 1990s, trade expanded again more rapidly, partly driven by innovations in the information technology (IT) sector. Despite the small contraction of trade caused by the dotcom crisis in...