The essay
...tively acted as a hard currency peg, the currency scenarios were more certain and led to lower risk and therefore higher volumes of capital flows. One would expect that in this new integrated scenario there would be a great degree of international portfolio investment diversification. However, this is not the case. Per example, US investors’ portfolio weights were 94% in US portfolios, the equivalent for The UK and Japan was 82% and 98% respectively (1990). This means that the vast majority of funds are invested in the national market, which is not in accordance with the perceived higher capital mobility due to globalisation. Furthermore there is a strong correlation between national savings/GDP and investment/GDP ratios. A historic perspective It is a common misconception that the processes engineering the global economy started in the 1960s. Structured international trade has been conducted since the 14th century, when the Hanseatic league organised German merchants. During the 17th and 18th century the great colonial multinational enterprises came to life. Technical and organisational developments after 1870 allowed the same firm to offer a variety of similar products to be produced both home and abroad. The discovering of minerals and other raw materials lead to a large increase in FDI. The first truly multinational enterprises appeared by the mid 19th century, and were well established by WW1. International business activity grew substantially in the 1920s, but slowed down during the Great Depression (1930s) and the WW2 years. Since 1950 there has been a fluctuating expansion of world trade and investment. In terms of the volume of international trade, it expanded at 3.4% per annum between 1870 and 1913. Just as FDI, the growth slowed down due to the wars and the depression. Trade took off from 1950 until 1973, growing at 9% per annum. It has since declined to late 19th century levels. Migration follows along the same lines, with a downturn during the wars etc. due to economic hardship and restrictive immigration policies. Since 1950s the migration flows resurfaced, with the US the most likely destination. This migration has taken the form of worker/specialist migration, as mass family migration has not resurfaced after WW2. In comparison with the 19th century’s trade flows, in terms of exports and imports/GDP the late 20th century globalisation does not appear very clear and substantial. In the ratio merchandise trade/GDP, the US has only risen from 5.6% to 8% from 1890 to 1990. The UK has experienced a decline from 27.3% to 20.6% in the same period. The ratios for France, Germany and Japan all increased to a small extent in the same period. These surprising ratios are in part due to the fact that countries tend to devote a higher proportion of GDP to (largely) non-tradable services as GDP grows. Perhaps a better measure in comparing the late 20th century globalisation face with that of the late 19th century is to compare merchandise trade to merchandise value added. The figures then show a marked increase in most cases. The US went up from 14.3% in 1890 to 35.8% in 1990...