Financial globalization since the 1970s

1. Financial globalization since the 1970sSince the 1970s, the rapid expansion and globalization of financial markets shadows most other recent developments in international economics.This chapter documents and defines financial globalization and discusses what caused it: developments in information-processing technologies; government deregulation; and the more global nature of all economic activity.International interest rate and financial strategy 'parities' are presented as new, dominant, dynamic patterns in the global economy.Also in this chapter, it will be argued that financial market globalization has been a driving force behind recent imbalances in trade and investment between countries, and that the self-adjustment mechanisms within the global economy have been irreversibly changed by financial globalization.An understanding of these recent structural changes provides a necessary introduction to subsequent chapters, where it will be argued that financial globalization processes are behind most of the major financial instabilities, trends, booms, and busts since the 1970s.In particular, what the author presents in Chapter 4 as 'the long boom' that extended from the early 1980s to its peak in 2006, as well as the recent global economic crisis that followed this boom, were both driven by financial globalization processes.Richard O'Brien provides some helpful definitions of globalization processes, which can be applied to non-financial as well as financial markets:International means activities taking place between nations . . .multinational describes activities taking place in more than one nation . . .global should refer to operations within an integral whole, if it is to have a separate meaning from the foregoing terms.Global combines the elements of international and multinational with a strong degree of integration between the different national parts . . .A truly global service knows no internal boundaries, can be offered throughout the globe, and pays scant attention to national aspects.The nation becomes irrelevant, even though it will still exist.The closer we get to a global, integral whole, the closer we get to the end of geography.(O'Brien, 1992, p. 5) For the purposes of this book, O'Brien's definition of globalism is useful-operations taking place within an integrated whole whereby Roy E.