The Two Waves of Globalization Industrial Revelution and...

The main idea of this article is that there were two major waves of globalization, both of which were â€Å"superficially similar, but fundamentally different.† The first wave occurred during 1870-1914 and the second from 1960 to present. The superficial similarities between the two include the aggregate trade-to-GDP ratio and capital flow-to-GDP ratios in addition to the importance of reductions in technical and policy barriers to international trade. The fundamental differences, on the other hand, are the impact reductions had on trade and the economic beliefs and initial conditions of the two periods. The first wave of globalization was driven by the Industrial Revolution. It transformed the British economy by improving transportation,†¦show more content†¦Whereas the first wave was a result of industrialization, the second wave came from de-industrialization. When the second wave began, the world was already distinctly divided between rich industrial nations and p oor primary producer nations. Income divergence became wide in the world while convergence only occurred among the wealthy nations. This was due to the fact that world trade became dominated by intra-industry trade by rich countries with similar factor endowments, such as labor and capital. Hence, the rich kept becoming richer and the poor stayed poor. By this beginning of this period, transport costs had already decreased significantly. This coupled with a growth in international financial markets would cause one to believe that capital mobility levels were high. However, studies show that this was not the case and that levels are actually not as high today as they were during the first wave. In contrast to the long-term foreign direct investments prevalent during the 19th century, the 20th century is more focused on the quick and continuous movement of highly liquid assets. Today, the biggest concern is exchange rate management and the world trading system is now viewed as an esse ntial public good. Presently, strong institutions uphold the system and protectionist policies are almost obsolete (with the exceptions of some counties like China and Russia). Institutions like the