Macroeconomics

Globalization and the Current Crisis

For the International Monetary Fund, globalization also means that information and knowledge get dispersed and shared. However, it is important to stress that developments in the globalization process have made the dispersal and sharing of information at a very fast speed. This implies that speculation, as we well as transmission of fears, overreaction, both optimism and pessimism, and shaping of expectations, takes place at a very fast speed. At the same time, according to the IMF, the world’s financial markets have experienced a dramatic increase in globalization in recent years. Global capital flows increased from 2% of the world GDP in the 1980s to 14.8% at $7.2 trillion. Developed countries experienced increases that are more dramatic but developing countries have also become more financially integrated.Just recently, in 2008, the International Monetary Fund reported that academics had been debating on the impacts of globalization and acknowledged that one section of academics saw globalization as injecting dangerous volatility. However, the IMF insisted that financial integration resulted in unambiguous gains for advanced economies. The IMF also emphasized that there are costs in being overly cautious in the opening to international capital flows. Further, the IMF also emphasized that emerging economies can gain from financial globalization if they have sound macroeconomics, economies substantially open to trade, and well-developed financial sectors.

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