Academic journal article Journal of Comparative International Management

Redesigning Financial Governance for the New Global Economy of the 21st Century

Academic journal article Journal of Comparative International Management

Redesigning Financial Governance for the New Global Economy of the 21st Century

Article excerpt

1. Introduction

Globalization has melted national borders and redefined economic policy. Free trade has enhanced economic integration and extended the economic architecture. The information and communications revolution has made geography and time irrelevant and enhanced the reach of economic parameters. In consequence, the institutional architecture of economic governance requires modernization as well as transitional and transformational change. This is particularly true since the existing economic governance architecture was designed for the old economy and has proven ineffective and inadequate for the new economy. Furthermore, the new economy is built on a culture of innovation. Indeed, the signature mark of the new global economy is new ideas, new technologies and new initiatives (Passaris, 2006).

The global financial crisis of 2008 took everybody by surprise. Furthermore, the financial crisis had a more devastating effect than simply creating the most significant global economic crisis since the Great Depression of the 1930's. The crisis revealed the structural fault lines on the contemporary economic landscape.

2. Global Economy

The new global economy of the 21st century has transformed the economic, social, educational and political landscape in a profound and indelible manner. The new economy is composed of a trilogy of interactive forces that include globalization, trade liberalization and the information technology and communications revolution.

The advent of the new economy has resulted in the fundamental restructuring of economic society. The role of innovation as a catalyst drives the engine of economic growth and has become a fundamental postulate of the new global economy. Furthermore, the pivotal role of a country's human resources and the unique economic value of its human capital endowment, which is reflected in the educational attainment and technical skills of its population, is an essential prerequisite for empowering the new economy and facilitating the integration of labour in the knowledge based industries. The knowledge based economy is fuelled by technology, human capital and research and development. In short, the fuel of the new economy is technology and its currency is human capital. The product of the new economy is knowledge and its market is the virtual marketplace of the Internet (Passaris, 2011).

2.1 Economic Globalization

Economic globalization is not simply a theoretical, qualitative or conceptual construct, it is determined by the growth of foreign direct investment (FDI), the increase in international trade and the volume of transactions in international financial markets. Also the global outreach and economic integration beyond national borders impacts on numerous economic activities such as the statistical data on the increase in yearly flows of FDI and merchandise trade in relation to gross domestic product, the rate of growth in the stock of FDI, the increase in international financial flows and the international mobility of labour (United Nations, 2000) .

Multinational and transnational private sector corporations have emerged as a catalyst for globalization. There are also significant qualitative aspects to globalization that should be noted as well. The transformation of the composition of trade from finished products to intermediate and sub-components is a case in point. Another example is the global reach of new financial products of derivatives and hedge funds. Indeed, the full impact of economic globalization should be considered in the context of its quantitative and qualitative dimensions. There is no denying that the observed acceleration in the pace of economic globalization can be attributed to technological advances and innovations in information technologies and communications, trade liberalization, the growth in incomes and consumption and productivity growth.

The advent of economic globalization requires a new perspective and a renewal of governance principles. …

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