The increasingly integrated global economy presents policymakers with both opportunities and challenges. Global economic integration is widely thought to improve the allocation of resources, promote technology transfer, and enhance living standards. But, at the same time, economic integration has frequently been blamed for growing trade imbalances, increased financial market volatility, and less effective domestic macroeconomic policies.
To better understand how policymakers can maximize the benefits from globalization while recognizing the challenges, the Federal Reserve Bank of Kansas City sponsored a symposium entitled, "Global Economic Integration: Opportunities and Challenges," held at Jackson Hole, Wyoming, on August 24-26, 2000. The symposium brought together a distinguished group of central bankers, academics, and financial market experts. Participants at the symposium agreed that globalization has produced net economic benefits for national economies and outlined a variety of approaches for addressing the associated challenges.
ECONOMIC INTEGRATION, FINANCIAL MARKETS, AND TRADE
The first day of the symposium covered a variety of issues from various perspectives, including those of Federal Reserve Chairman Alan Greenspan, two financial market regulators, and several public-sector and academic economists. The session started with a discussion of the factors driving global economic integration, then turned to financial market issues. Academic economists gave their views on how economic integration has affected financial market stability, and a panel of regulatory specialists discussed possible policy responses. The day concluded with an overview of trade issues from the perspective of the Director-General of the World Trade Organization (WTO).
In his opening commnents, Chairman Greenspan defined globalization as "the increasing interaction of national economic systems." He linked this trend to technological progress and to government policies that have promoted deregulation and privatization in markets around the world. In particular, technological improvements have lowered transactions and information costs, promoting the efficient operation of market-based economic systems. The resulting expansion of markets has been associated with increased competition and reduced tariffs and trade barriers.
Looking ahead, Greenspan questioned whether the trend toward global economic integration and free markets would continue as rapidly as in the past. The central tenants of free markets-competition and the Schumpeterian process of "creative destruction"-raise concerns in some quarters about the unequal distribution of wealth and the "civility of society." Accordingly, if the recent period of economic growth were to subside, support for free markets and trade liberalization could fade.
Following Greenspan's comments, Michael Mussa examined various factors that have contributed to global economic integration and are likely to contribute in the future. According to Mussa, factors driving integration fall into three categories-technology, preferences, and public policy. These factors have acted individually and interactively in driving integration.
Improvements in technology have bolstered integration by lowering the cost of transporting goods and people from one place to another and by reducing the cost of communicating ideas. Social and individual preferences for the benefits of globalization-including an increasing variety of goods and services-have also contributed to integration. In contrast, public policy has at times promoted integration while at other times has acted as a barrier to globalization. Given these driving forces, Mussa examined how human migration and increasing trade and financial flows have defined the process of global integration.
In assessing future prospects, Mussa was optimistic. He suggested that the process of integration would continue because of continued technical innovation and favorable public policies. …