The development of communication and new technologies, and the use of Internet have made huge economic and political transformations. People, banks and industries use the cyberspace to trade their capitals among national and regional economies. Moreover, economic integration and economic globalization have shrunk economic connections across the globe. Goods and Services can be easily trade among nations because there are several facilities of transportation, control, and payment. The increase flows of capital mediated by digital technology have stimulated several transactions. However, the uncontrollable use of capital flows has also triggered economic issues like economic crises, deficits in the balance of payments, capital outflows, and inconveniences with the exchange rate. Although capital flows could be considered risky, it is important to consider the evolution of international economy and the interaction of its economic actors to determine if capital flows trigger benefits.
According with Steger, the contemporary economic globalization started with the emergence of Bretton Woods. The United States and Grain Britain resolved to create a more stable money exchange system in which the value of each country’s currency was attached to a fixed gold value of the US dollar (p.38). This institution also set the institutional foundation for the three new institutional economic organizations the international Monetary Found (IMF), the World Bank and the General Agreement on Tariffs and Trade (GATT). During the regimen of Bretton Woods, the economist John Maynard Keynes who was a strong proponent of capital controls established the framework of the system in which states control all over the international capital movements. However, many countries limit asset transactions to cope with balance-of-payments difficulties. In 1970, the Bretton Woods system collapsed and the neoliberal economic order started. This new economic system was characterized by the privatization of public enterprises, liberalization of trade and industry, massive tax cuts, “monetarist” measures to keep inflation in check, even at the risk of increasing unemployment, expansion of international markets and others (p.42). One of the main supporters of the free capital markets was the IMF. Under it influence many developing countries open their economies to multinational enterprises and long-term foreign investors. Even if short-term lending and borrowing or portfolio flows, also called “hot money” were viewed with skepticism, countries used it a new mechanism to generate wealth (Rodrik 2011, p.90). During the neoliberal economic order, capital movements were a fact. It would increase investment, growth, and prosperity. They were a consequence of the significant expansion of free trade “the total value of world trade exploded from $57 billion in 1947 to an astonishing $14.9 trillion in 2010” (Steger 2013, p.41). Financial transactions included the deregulation of interest rates, the removal of credit controls, the privatization of government-owned banks and financial institutions and the explosive growth of investment banking (p.43). According with Neely, the benefits of capital flows are that they permit nations to trade consumption today for consumption in the future to engage in intertemporal trade; they permit countries to avoid large falls in national consumption from economic downturn or natural disaster by selling assets to and/or borrowing from the rest of the world; they permit countries as a whole to borrow in order to improve their ability to produce goods and services in the future; Also the use of capital flows promote technology transfer that often accompanies foreign investment, or the greater competition in domestic markets that results from permitting foreign firms to invest locally (p.14). Even tough capital flows would allow global savings to be allocated more efficiently, increase their productive uses, and raise economic growth; this mechanism is characterized by high volatility and speculation. Some consequences of a deregulated global financial infrastructure are the Southeast Asia Crisis in 1997-98, which would then …show more content…
These institutions not only have the possibility to move capital around the world, they have the capacity to deregulate global labour market. According with Steger, these institutions have the ability to disperse manufacturing processes into many discrete phases carried out in many different locations around the world reflects the changing nature of global production (p.54) TNCs have became important players that influence the economic, political, and social welfare of many
According with Steger, the contemporary economic globalization started with the emergence of Bretton Woods. The United States and Grain Britain resolved to create a more stable money exchange system in which the value of each country’s currency was attached to a fixed gold value of the US dollar (p.38). This institution also set the institutional foundation for the three new institutional economic organizations the international Monetary Found (IMF), the World Bank and the General Agreement on Tariffs and Trade (GATT). During the regimen of Bretton Woods, the economist John Maynard Keynes who was a strong proponent of capital controls established the framework of the system in which states control all over the international capital movements. However, many countries limit asset transactions to cope with balance-of-payments difficulties. In 1970, the Bretton Woods system collapsed and the neoliberal economic order started. This new economic system was characterized by the privatization of public enterprises, liberalization of trade and industry, massive tax cuts, “monetarist” measures to keep inflation in check, even at the risk of increasing unemployment, expansion of international markets and others (p.42). One of the main supporters of the free capital markets was the IMF. Under it influence many developing countries open their economies to multinational enterprises and long-term foreign investors. Even if short-term lending and borrowing or portfolio flows, also called “hot money” were viewed with skepticism, countries used it a new mechanism to generate wealth (Rodrik 2011, p.90). During the neoliberal economic order, capital movements were a fact. It would increase investment, growth, and prosperity. They were a consequence of the significant expansion of free trade “the total value of world trade exploded from $57 billion in 1947 to an astonishing $14.9 trillion in 2010” (Steger 2013, p.41). Financial transactions included the deregulation of interest rates, the removal of credit controls, the privatization of government-owned banks and financial institutions and the explosive growth of investment banking (p.43). According with Neely, the benefits of capital flows are that they permit nations to trade consumption today for consumption in the future to engage in intertemporal trade; they permit countries to avoid large falls in national consumption from economic downturn or natural disaster by selling assets to and/or borrowing from the rest of the world; they permit countries as a whole to borrow in order to improve their ability to produce goods and services in the future; Also the use of capital flows promote technology transfer that often accompanies foreign investment, or the greater competition in domestic markets that results from permitting foreign firms to invest locally (p.14). Even tough capital flows would allow global savings to be allocated more efficiently, increase their productive uses, and raise economic growth; this mechanism is characterized by high volatility and speculation. Some consequences of a deregulated global financial infrastructure are the Southeast Asia Crisis in 1997-98, which would then …show more content…
These institutions not only have the possibility to move capital around the world, they have the capacity to deregulate global labour market. According with Steger, these institutions have the ability to disperse manufacturing processes into many discrete phases carried out in many different locations around the world reflects the changing nature of global production (p.54) TNCs have became important players that influence the economic, political, and social welfare of many