Abstract
Globalization, as a concept has three main aspects: economic, political and social. Economic globalization in general, refers to the liberalization of trade between countries and increasing mobility of factors. In the case of factor mobility, capital flows come to the fore. Increasing capital mobility in the form of foreign direct investment and more importantly, portfolio investments, apart from causing a new international division of labour among regions of the world, also have important effects on the financialization phenomenon, changes in income distribution and changing institutional structures. Developments in information-telecommunication technologies, changing patterns in intellectual sphere, as well as in political and economic institutions especially after the mid-1970s play a role in the rise of financial globalization. Financial liberalization has been celebrated since McKinnon (1973)-Shaw (1973), but the Great Recession sparked doubts on the ability of unchecked financial development on providing a solid and fair foundation of economic development.
TopFinancializing Globalization-Globilizing Financialization
Three concepts have come to the fore with the 1970s. Those are, the rise of neoliberalism, globalization and financialization. Role of state diminished with neoliberalism, economic relations intensified with the globalization process, volume of financial transactions increased all over the world with financialization and these three concepts have also been in association with eachother (Epstein, 2005, p.3). For Dumenil & Levy (2005), both the globalization process and rise of neoliberalism points to a mere fact: expanding domination of finance and financialization.
Globalization refers to the increasing volume of economic interaction between citizens of different countries and accompanying structural changes. At the same time, globalization can be seen as a phenomenon of integration among national markets and emergence of a world market. If financial globalization is seen as such, one could expect that the parity differences between interest rates or rates of return to be more and more lower with globalization process underway. Because, in its simplest form, there must be a single price, in an integrated single market (Baker, Epstein & Pollin, 1998). From this vantage point, the very existance of a disparity in interest rates or rates of return among different countries can be seen as a paradox of globalization. If there were a single rate or single price in the world market; there wouldn’t be any capital flows. As Samuel Britton (1969) notes, globalization is a world situation where there is only one interest rate prevailing as Cerny (1996) quotes. If financial globalization is thought as the rapid growth of capital flows; one could expect globalization to actually reduce capital flows as it advanced.In this situation, financial globalization ought to advance with a decreasing speed since the second half of the 1970s. For this reason, the term financial globalization is in itself suspicious.
Key Terms in this Chapter
Accumulation Regimes: The different types of economic growth regimes, implying different income distributions, institutional structures and household and firm behaviours.
Globalization: The increasing economic, political and social interaction and cooperation among nation-states.
Income Inequality: The degree of inequality in the division of income generated in an economy.
Financial Development: The degree of improvement in financial markets. Both concerning the size and quality of financial markets.
Financialization: The growing importance of financial transactions and financial markets over other economic activities and accompanying political, social and organizational transformations.
Liberalisation: The lifting of various barriers constraining trade in general and different specific markets such as the labour market and most prominently, financial markets. The term often goes hand in hand with deregulation applications.