《国际政治经济学》文献资料（Political Economy of Regionalization and Globalization）The Causes of Globalization

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The most important causes of globalization differ among the three major components of interna- tional market integration:trade,multinational production,and intemational finance.The infor- mation technology revolution has made it very difficult for governments to control cross-border capital movements,even if they have political incentives to do so.Governments can still restrict the multinationalization of production,but they have increasingly chosen to liberalize because of the macroeconomic benefits.Although the one-time Ricardian gains from freer trade are clear, whether trade is good for growth in the medium term is less certain.In the case of trade,the increasing interest of exporters in opening up domestic markets has had a powerful impact on the trend to liberalization.Cross-national variations in market integration still endure,but these are more the product of basic economic characteristics (such as country size and level of develop- ment)than political factors(such as regime type or the left-right balance of power). THE CAUSES OF GLOBALIZATION GEOFFREY GARRETT Yale University Theteiithiaosiepmciye equilibrating.But beyond this already trite cliche,almost everything else concerning the phenomenon is subject to intense debate-in the context of an explosion of interest in and research on the subject.1 This article explores what we know about the causes of globalization.In a follow-up article,I will address globalization's consequences for domestic societies(in terms of in- equality and economic insecurity),national autonomy (with respect to regu- lation,spending and taxation,exchange rate regimes,etc.),and international governance (International Monetary Fund [IMF],World Trade Organization [WTO],etc.).Throughout,I define globalization somewhat narrowly as the 1.In 1980.there were fewer than 300 articles or books with the word globalor globalization in the title.In 1995,the number was over 3,000 (Guillen,in press,Table 2). AUTHOR'S NOTE:Thanks to Stephen Brooks,Michael Dooley.Jeffry Frieden,and Ronald Rogowski for helpful discussions on various aspects of this article.I would also like to thank Alexandra Guisinger,Nathan Jensen,Jason Sorens,Andrew Youn,and especially Nancy Brune for invaluable research assistance. COMPARATIVE POLITICAL STUDIES,Vol.33 No.6/7,August/September 2000 941-991 2000 Sage Publications.Inc. 941 Dowrloaded from http://cps.sagepub.com at CORNELL UNIV on February 11.2008 2000 SAGE Publications.All rights reserved.Not for commercial use or unauthorized distribution

COMPARATIVE POLITICAL STUDIES / August-September 2000 Garrett / CAUSES OF GLOBALIZATION The most important causes of globalization differ among the three major components of international market integration: trade, multinational production, and international finance. The information technology revolution has made it very difficult for governments to control cross-border capital movements, even if they have political incentives to do so. Governments can still restrict the multinationalization of production, but they have increasingly chosen to liberalize because of the macroeconomic benefits. Although the one-time Ricardian gains from freer trade are clear, whether trade is good for growth in the medium term is less certain. In the case of trade, the increasing interest of exporters in opening up domestic markets has had a powerful impact on the trend to liberalization. Cross-national variations in market integration still endure, but these are more the product of basic economic characteristics (such as country size and level of development) than political factors (such as regime type or the left-right balance of power). THE CAUSES OF GLOBALIZATION GEOFFREY GARRETT Yale University There is little disagreement these days that globalization is changing the world rapidly, radically, and in ways that may be profoundly disequilibrating. But beyond this already trite cliché, almost everything else concerning the phenomenon is subject to intense debate—in the context of an explosion of interest in and research on the subject.1 This article explores what we know about the causes of globalization. In a follow-up article, I will address globalization’s consequences for domestic societies (in terms of inequality and economic insecurity), national autonomy (with respect to regulation, spending and taxation, exchange rate regimes, etc.), and international governance (International Monetary Fund [IMF], World Trade Organization [WTO], etc.). Throughout, I define globalization somewhat narrowly as the 941 AUTHOR’S NOTE: Thanks to Stephen Brooks, Michael Dooley, Jeffry Frieden, and Ronald Rogowski for helpful discussions on various aspects of this article. I would also like to thank Alexandra Guisinger, Nathan Jensen, Jason Sorens, Andrew Youn, and especially Nancy Brune for invaluable research assistance. COMPARATIVE POLITICAL STUDIES, Vol. 33 No. 6/7, August/September 2000 941-991 © 2000 Sage Publications, Inc. 1. In 1980, there were fewer than 300 articles or books with the word global or globalization in the title. In 1995, the number was over 3,000 (Guillen, in press, Table 2). © 2000 SAGE Publications. All rights reserved. Not for commercial use or unauthorized distribution. Downloaded from http://cps.sagepub.com at CORNELL UNIV on February 11, 2008

942 COMPARATIVE POLITICAL STUDIES/August-September 2000 international integration of markets in goods,services,and capital.Other fac- ets of the phenomenon(such as increased labor mobility and cultural homog- enization)are surely important,but I leave their analysis to others.2 I examine four contending perspectives on the big picture:What explains the rapid pace of international market integration in recent decades?The first perspective claims that what we are witnessing today is,in fact,nothing new because current levels of market integration are only now returning to those in the last great era of economic internationalization at the turn of the 20th century.This view has been accepted as a statement of fact in numerous influ- ential studies (Katzenstein,Keohane,Krasner,1998,p.669;Krasner, 1999,pp.220-223;Rodrik,1997;Sachs Warner,1995).I argue,however, that notwithstanding the aggregate similarities between the two periods,core features of the contemporary world economy are without historical prece- dent.Large-scale portfolio lending to banks in developing countries for pur- poses other than raw material extraction,two-way manufacturing trade between the north and south,and complex multinational production regimes were simply unheard of a century ago. The remaining perspectives on global trends debate the causes of this unprecedented wave of international market integration.The root of the ana- lytic problem lies in the commingling of three secular trends:technological innovations lowering the costs of moving goods and more notably informa- tion around the world,growing international economic activity,and the liber- alization of foreign economic policies.What are the causal relationships among these three trends? The second perspective,technological determinism,contends that the shrinkage of time and space has been so dramatic and so pervasive that there is essentially nothing that can be done to stop it.According to this view,tech- nological changes have propelled international economic activity,and gov- ernments have been largely irrelevant.Thus,policy liberalization should be understood as governments'acknowledging the futility of trying to resist globalization,rather than acting as a prime mover behind market integration. Management gurus such as Ohmae(1995)have propounded this view,and political scientists such as Rosecrance(1999)and Strange(1998)use it as the starting point of their analyses. The case for a technologically determined view of globalization is far stronger with respect to international finance than to multinational produc- tion or trade.In the era of 24-hour global trading in a seemingly limitless array of financial instruments,governments can only hope marginally to influence control cross-border liquid capital movements.In contrast,though 2.See Drezner(1998)and Guillen (in press)for recent reviews of some of these issues. Dowrloaded from http://cps.sagepub.com at CORNELL UNIV on February 11.2008 2000 SAGE Publications.All rights reserved.Not for commercial use or unauthorized distribution

international integration of markets in goods, services, and capital. Other facets of the phenomenon (such as increased labor mobility and cultural homogenization) are surely important, but I leave their analysis to others.2 I examine four contending perspectives on the big picture: What explains the rapid pace of international market integration in recent decades? The first perspective claims that what we are witnessing today is, in fact, nothing new because current levels of market integration are only now returning to those in the last great era of economic internationalization at the turn of the 20th century. This view has been accepted as a statement of fact in numerous influential studies (Katzenstein, Keohane, & Krasner, 1998, p. 669; Krasner, 1999, pp. 220-223; Rodrik, 1997; Sachs & Warner, 1995). I argue, however, that notwithstanding the aggregate similarities between the two periods, core features of the contemporary world economy are without historical precedent. Large-scale portfolio lending to banks in developing countries for purposes other than raw material extraction, two-way manufacturing trade between the north and south, and complex multinational production regimes were simply unheard of a century ago. The remaining perspectives on global trends debate the causes of this unprecedented wave of international market integration. The root of the analytic problem lies in the commingling of three secular trends: technological innovations lowering the costs of moving goods and more notably information around the world, growing international economic activity, and the liberalization of foreign economic policies. What are the causal relationships among these three trends? The second perspective, technological determinism, contends that the shrinkage of time and space has been so dramatic and so pervasive that there is essentially nothing that can be done to stop it. According to this view, technological changes have propelled international economic activity, and governments have been largely irrelevant. Thus, policy liberalization should be understood as governments’ acknowledging the futility of trying to resist globalization, rather than acting as a prime mover behind market integration. Management gurus such as Ohmae (1995) have propounded this view, and political scientists such as Rosecrance (1999) and Strange (1998) use it as the starting point of their analyses. The case for a technologically determined view of globalization is far stronger with respect to international finance than to multinational production or trade. In the era of 24-hour global trading in a seemingly limitless array of financial instruments, governments can only hope marginally to influence control cross-border liquid capital movements. In contrast, though 942 COMPARATIVE POLITICAL STUDIES / August-September 2000 2. See Drezner (1998) and Guillen (in press) for recent reviews of some of these issues. © 2000 SAGE Publications. All rights reserved. Not for commercial use or unauthorized distribution. Downloaded from http://cps.sagepub.com at CORNELL UNIV on February 11, 2008

Garrett CAUSES OF GLOBALIZATION 943 the Internet creates novel problems,it remains easier for governments to reg- ulate cross-border movements of physical goods and the buying and selling of fixed assets.Hence,policy decisions to liberalize trade and foreign direct investment are likely to have been more consequential for international inte- gration in these markets. The third big picture perspective on globalization takes a more moderate view of the effects of technological change.Most mainstream economists (informing the "Washington consensus"and best-sellers;see Yergin Stanislaw,1999)believe that the potential efficiency gains from international integration have increased substantially as a result of technological progress in recent decades.From this perspective,governments can still insulate their countries from external market forces if they so choose.But the "increased opportunity costs of closure"have become sufficiently large to tip the bal- ance in favor of the liberalization of foreign economic policy in country after country. It is hard to argue that increasing opportunity costs of closure provide a persuasive account of the globalization of finance.The hypothetical effi- ciency gains of openness seem in practice to be at least offset by the costs associated with the uncertainty and volatility of international financial mar- kets.At the other end of the spectrum,increasing costs of closure probably have been the major motivation for liberalization in the area of foreign direct investment(FDD).FDI is an important driver of growth.It provides a trans- mission mechanism for the diffusion of technological innovations and less tangible benefits,such as managerial skills.The trade case is less clear-cut. On one hand,there are clearly important one-time gains from trade liberaliza- tion (e.g.,in terms of lowering prices).But modern economic theory is ambiguous as to whether freer trade is beneficial for economic growth,and the empirical evidence is also inconclusive. The final big picture perspective on globalization also accepts the critical role of government policy,but argues that the phenomenon is essentially a political construct that does not improve the economic condition of society as a whole.For example,Rodrik has raised numerous eyebrows among his economist colleagues by claiming that there is no evidence that either freer trade (Rodriguez Rodrik,1999)or capital mobility (Rodrik,1998)is good for economic growth.This is grist for the mill of political scientists such as Helleiner(1994),who propose power and ideology explanations of global- ization.On this"ideological change"view,the roots of contemporary global- ization lay in the neoliberal Reagan/Thatcher revolutions.They were spread throughout the developed world by the European Union(EU)and the Bank of International Settlements,and extended to developing counties by the IMF and the World Bank. Dowrloaded from http://cps.sagepub.com at CORNELL UNIV on February 11.2008 2000 SAGE Publications.All rights reserved.Not for commercial use or unauthorized distribution

the Internet creates novel problems, it remains easier for governments to regulate cross-border movements of physical goods and the buying and selling of fixed assets. Hence, policy decisions to liberalize trade and foreign direct investment are likely to have been more consequential for international integration in these markets. The third big picture perspective on globalization takes a more moderate view of the effects of technological change. Most mainstream economists (informing the “Washington consensus” and best-sellers; see Yergin & Stanislaw, 1999) believe that the potential efficiency gains from international integration have increased substantially as a result of technological progress in recent decades. From this perspective, governments can still insulate their countries from external market forces if they so choose. But the “increased opportunity costs of closure” have become sufficiently large to tip the balance in favor of the liberalization of foreign economic policy in country after country. It is hard to argue that increasing opportunity costs of closure provide a persuasive account of the globalization of finance. The hypothetical efficiency gains of openness seem in practice to be at least offset by the costs associated with the uncertainty and volatility of international financial markets. At the other end of the spectrum, increasing costs of closure probably have been the major motivation for liberalization in the area of foreign direct investment (FDI). FDI is an important driver of growth. It provides a transmission mechanism for the diffusion of technological innovations and less tangible benefits, such as managerial skills. The trade case is less clear-cut. On one hand, there are clearly important one-time gains from trade liberalization (e.g., in terms of lowering prices). But modern economic theory is ambiguous as to whether freer trade is beneficial for economic growth, and the empirical evidence is also inconclusive. The final big picture perspective on globalization also accepts the critical role of government policy, but argues that the phenomenon is essentially a political construct that does not improve the economic condition of society as a whole. For example, Rodrik has raised numerous eyebrows among his economist colleagues by claiming that there is no evidence that either freer trade (Rodriguez & Rodrik, 1999) or capital mobility (Rodrik, 1998) is good for economic growth. This is grist for the mill of political scientists such as Helleiner (1994), who propose power and ideology explanations of globalization. On this “ideological change” view, the roots of contemporary globalization lay in the neoliberal Reagan/Thatcher revolutions. They were spread throughout the developed world by the European Union (EU) and the Bank of International Settlements, and extended to developing counties by the IMF and the World Bank. Garrett / CAUSES OF GLOBALIZATION 943 © 2000 SAGE Publications. All rights reserved. Not for commercial use or unauthorized distribution. Downloaded from http://cps.sagepub.com at CORNELL UNIV on February 11, 2008

944 COMPARATIVE POLITICAL STUDIES/August-September 2000 It is easy,however,to endogenize these ideological changes in terms of technological determinism in international finance and increased opportu- nity costs of closure with respect to multinational production.In the former case,there might be domestic political incentives for governments to main- tain restrictions on cross-border capital movements that are futile in an eco- nomic sense.Such policies send negative signals to the financial markets, however,and many governments may be unwilling to take this risk.In terms of foreign direct investment,the fact that multinational firms have become critical drivers of technological innovation,learning,and economic growth affords them a very "privileged position"(Lindblom,1977)in domestic pol- icy debates. Trade liberalization,in contrast,has not been technologically determined, and the opportunity costs of closure continue to be debated.Changing prefer- ences and coalitional politics may therefore have played a greater role here than with respect to international finance or multinational production.One possible explanation is that exporters have become much more interested in opening their home markets,mitigating the traditional political bias in favor of protection,because of fears of retaliation against them abroad and because many exporters import large portions of the goods they use as inputs in mak- ing finished products. Students of international relations and comparative politics may well object at this point that my analysis gives short shrift to their central concerns and insights.International political economists have devoted enormous attention to cooperative and institutionalized efforts to reduce barriers to international economic exchange among countries.The bread and butter of comparative political economy,on the other hand,concerns explaining cross- national differences in economic policies and outcomes. My general response to these objections is that political scientists tend not to explore in sufficient detail the economics of globalization before they move on to analyzing its politics.Moreover,they have an inherent bias toward assuming both that government policies have real effects and that they are chosen for political reasons.In the case of the trend toward international market integration,it is important to problematize both assumptions.Tech- nological determinists believe that government policy is essentially irrele- vant to globalization;the increased opportunity costs of closure approach suggests that governments have liberalized their economies simply because it is the efficient thing to do.Before asserting that globalization is a political phenomenon,we should assess the merits of these parsimonious explana- tions derived from economic analysis. With respect to international political economy,I do not wish to dispute either that free rider and coordination problems may hinder international Dowrloaded from http://cps.sagepub.com at CORNELL UNIV on February 11.2008 2000 SAGE Publications.All rights reserved.Not for commercial use or unauthorized distribution

It is easy, however, to endogenize these ideological changes in terms of technological determinism in international finance and increased opportunity costs of closure with respect to multinational production. In the former case, there might be domestic political incentives for governments to maintain restrictions on cross-border capital movements that are futile in an economic sense. Such policies send negative signals to the financial markets, however, and many governments may be unwilling to take this risk. In terms of foreign direct investment, the fact that multinational firms have become critical drivers of technological innovation, learning, and economic growth affords them a very “privileged position” (Lindblom, 1977) in domestic policy debates. Trade liberalization, in contrast, has not been technologically determined, and the opportunity costs of closure continue to be debated. Changing preferences and coalitional politics may therefore have played a greater role here than with respect to international finance or multinational production. One possible explanation is that exporters have become much more interested in opening their home markets, mitigating the traditional political bias in favor of protection, because of fears of retaliation against them abroad and because many exporters import large portions of the goods they use as inputs in making finished products. Students of international relations and comparative politics may well object at this point that my analysis gives short shrift to their central concerns and insights. International political economists have devoted enormous attention to cooperative and institutionalized efforts to reduce barriers to international economic exchange among countries. The bread and butter of comparative political economy, on the other hand, concerns explaining crossnational differences in economic policies and outcomes. My general response to these objections is that political scientists tend not to explore in sufficient detail the economics of globalization before they move on to analyzing its politics. Moreover, they have an inherent bias toward assuming both that government policies have real effects and that they are chosen for political reasons. In the case of the trend toward international market integration, it is important to problematize both assumptions. Technological determinists believe that government policy is essentially irrelevant to globalization; the increased opportunity costs of closure approach suggests that governments have liberalized their economies simply because it is the efficient thing to do. Before asserting that globalization is a political phenomenon, we should assess the merits of these parsimonious explanations derived from economic analysis. With respect to international political economy, I do not wish to dispute either that free rider and coordination problems may hinder international 944 COMPARATIVE POLITICAL STUDIES / August-September 2000 © 2000 SAGE Publications. All rights reserved. Not for commercial use or unauthorized distribution. Downloaded from http://cps.sagepub.com at CORNELL UNIV on February 11, 2008

Garrett CAUSES OF GLOBALIZATION 945 market integration or that international institutions may mitigate these prob- lems.But I am skeptical that this Alexrod-Keohane paradigm gives us much leverage over the big picture of the contemporary trend to globalization.It would be hard to make the case with respect to the liberalization of interna- tional finance and the multinationalization of production-simply because policy liberalization in these areas has not required international cooperation or international institutions (i.e.,the evidence suggests that they are not inter- national prisoner's dilemmas or even coordination games). The prima facie case for the importance of international institutions is stronger with respect to trade integration.The WTO,North American Free Trade Agreement(NAFTA),and the EU all contain mechanisms for generat- ing common standards and policing free riding.To argue that these institu- tions caused trade integration,however,one would have to contend (implau- sibly,in my opinion)that they were truly innovative-that is,representing radically new technologies for dealing with the problems of cooperation that were heretofore unavailable.It seems more reasonable to contend that prefer- ence convergence among participating governments was a precondition for the effectiveness of these institutional solutions (Goldstein,1997; Moravcsik,1998).Thus,we should focus on explaining why this conver- gence in preferences occurred. The comparative politics objection to my approach is very different.Not- withstanding the secular trend of ever-greater market integration,there clearly still are ins and outs in the putative global economy.For globalization pundits,these differences may be merely ephemeral bumps that will soon be smoothed over on the road to a truly seamless global marketplace. Comparativists are likely to demur,arguing that cross-national variations in international market integration are sticky and well worth exploring in their own right. This move to assaying cross-national differences in market integration is important,but in my judgment it is a second-order move that should follow analysis of the broader,over-time trend to more integration.A good portion of the cross-national variation in international integration is certainly explained by essentially unalterable features of countries,such as their size and geographic location.There are also well-developed theoretical approaches to the problem that emphasize the impact of a country's eco- nomic structure on societal preferences and coalitions(Frieden Rogowski, 1996)and the role of political institutions ranging from trade unions to con- stitutional systems (Garrett Lange,1995). I offer a brief analysis of these perspectives with respect to three promi- nent classes of variables:levels of development,the extent of democracy,and the balance of power between the left and right.The strongest result is that Dowrloaded from http://cps.sagepub.com at CORNELL UNIV on February 11.2008 2000 SAGE Publications.All rights reserved.Not for commercial use or unauthorized distribution

market integration or that international institutions may mitigate these problems. But I am skeptical that this Alexrod-Keohane paradigm gives us much leverage over the big picture of the contemporary trend to globalization. It would be hard to make the case with respect to the liberalization of international finance and the multinationalization of production—simply because policy liberalization in these areas has not required international cooperation or international institutions (i.e., the evidence suggests that they are not international prisoner’s dilemmas or even coordination games). The prima facie case for the importance of international institutions is stronger with respect to trade integration. The WTO, North American Free Trade Agreement (NAFTA), and the EU all contain mechanisms for generating common standards and policing free riding. To argue that these institutions caused trade integration, however, one would have to contend (implausibly, in my opinion) that they were truly innovative—that is, representing radically new technologies for dealing with the problems of cooperation that were heretofore unavailable. It seems more reasonable to contend that preference convergence among participating governments was a precondition for the effectiveness of these institutional solutions (Goldstein, 1997; Moravcsik, 1998). Thus, we should focus on explaining why this convergence in preferences occurred. The comparative politics objection to my approach is very different. Notwithstanding the secular trend of ever-greater market integration, there clearly still are ins and outs in the putative global economy. For globalization pundits, these differences may be merely ephemeral bumps that will soon be smoothed over on the road to a truly seamless global marketplace. Comparativists are likely to demur, arguing that cross-national variations in international market integration are sticky and well worth exploring in their own right. This move to assaying cross-national differences in market integration is important, but in my judgment it is a second-order move that should follow analysis of the broader, over-time trend to more integration. A good portion of the cross-national variation in international integration is certainly explained by essentially unalterable features of countries, such as their size and geographic location. There are also well-developed theoretical approaches to the problem that emphasize the impact of a country’s economic structure on societal preferences and coalitions (Frieden & Rogowski, 1996) and the role of political institutions ranging from trade unions to constitutional systems (Garrett & Lange, 1995). I offer a brief analysis of these perspectives with respect to three prominent classes of variables: levels of development, the extent of democracy, and the balance of power between the left and right. The strongest result is that Garrett / CAUSES OF GLOBALIZATION 945 © 2000 SAGE Publications. All rights reserved. Not for commercial use or unauthorized distribution. Downloaded from http://cps.sagepub.com at CORNELL UNIV on February 11, 2008

946 COMPARATIVE POLITICAL STUDIES/August-September 2000 countries at higher levels of development are more likely to open their bor- ders to the international economy,which can be easily explained from a Frieden-Rogowski perspective.Of course,if growth economists are right that differences in levels of development must diminish over time("conditional convergence"),this implies that cross-national variations in market integra- tion will diminish over time.The debate would then move on to how long this might take. The remainder of this article explores in more detail the causes of the secu- lar trend to more globalized markets in recent decades and of persistent cross-national differences in participation in the global economy.The first section lays the foundation for my analysis by describing the landscape with respect to international economic movements of trade and capital and to gov- ernment policies concerning these flows.The second section discusses the case for the proposition that contemporary globalization is nothing new.The merits of a technological determinist perspective on market integration are assessed in the third section.The fourth section addresses the issue of whether the opportunity costs of closure have risen in recent years.The fifth section explores the causes and consequences of ideological shifts in favor of liberalization.The sixth section then changes gears to focus on the reasons for enduring cross-national differences in market integration.The final sec- tion briefly summarizes what we know about the causes of globalization and sketches the implications of this article for analyses of the consequences of globalization. THE PARAMETERS OF CONTEMPORARY GLOBALIZATION No matter how many different numbers are presented or how frequently one hears them,the growth of international economic activity in the past 30 years remains staggering.Figure I plots the growth of global flows in trade, foreign direct investment,and international portfolio investment (equities and bonds).Although the scales for trade and capital are very different,the trend lines are similar and familiar.International economic activity grew at increasingly rapid rates over the period,and the rates of growth were faster in more liquid markets(foreign exchange>portfolio>FDI>trade).3 In 1970, exports plus imports constituted roughly one quarter of worldwide gross 3.Global foreign exchange transactions increased fully 50-fold between 1980 and 1998 to reach $2trillion perday ("Finance,"1999,p.91:"Meddling."1999,p.96).Thisoutstrips the for- eign exchange reserves of all the Organization of Economic Cooperation Development(OECD) countries combined.The world gross domestic product(GDP)in 1997 was approximately $34 trillion. Dowrloaded from http://cps.sagepub.com at CORNELL UNIV on February 11.2008 2000 SAGE Publications.All rights reserved.Not for commercial use or unauthorized distribution

countries at higher levels of development are more likely to open their borders to the international economy, which can be easily explained from a Frieden-Rogowski perspective. Of course, if growth economists are right that differences in levels of development must diminish over time (“conditional convergence”), this implies that cross-national variations in market integration will diminish over time. The debate would then move on to how long this might take. The remainder of this article explores in more detail the causes of the secular trend to more globalized markets in recent decades and of persistent cross-national differences in participation in the global economy. The first section lays the foundation for my analysis by describing the landscape with respect to international economic movements of trade and capital and to government policies concerning these flows. The second section discusses the case for the proposition that contemporary globalization is nothing new. The merits of a technological determinist perspective on market integration are assessed in the third section. The fourth section addresses the issue of whether the opportunity costs of closure have risen in recent years. The fifth section explores the causes and consequences of ideological shifts in favor of liberalization. The sixth section then changes gears to focus on the reasons for enduring cross-national differences in market integration. The final section briefly summarizes what we know about the causes of globalization and sketches the implications of this article for analyses of the consequences of globalization. THE PARAMETERS OF CONTEMPORARY GLOBALIZATION No matter how many different numbers are presented or how frequently one hears them, the growth of international economic activity in the past 30 years remains staggering. Figure 1 plots the growth of global flows in trade, foreign direct investment, and international portfolio investment (equities and bonds). Although the scales for trade and capital are very different, the trend lines are similar and familiar. International economic activity grew at increasingly rapid rates over the period, and the rates of growth were faster in more liquid markets (foreign exchange portfolio FDI trade).3 In 1970, exports plus imports constituted roughly one quarter of worldwide gross 946 COMPARATIVE POLITICAL STUDIES / August-September 2000 3. Global foreign exchange transactions increased fully 50-fold between 1980 and 1998 to reach $2 trillion per day (“Finance,” 1999, p. 91; “Meddling,” 1999, p. 96). This outstrips the foreign exchange reserves of all the Organization of Economic Cooperation Development (OECD) countries combined. The world gross domestic product (GDP) in 1997 was approximately $34 trillion. © 2000 SAGE Publications. All rights reserved. Not for commercial use or unauthorized distribution. Downloaded from http://cps.sagepub.com at CORNELL UNIV on February 11, 2008

Garrett CAUSES OF GLOBALIZATION 949 Figure 3 reveals a similar pattern with respect to international capital flows(combined portfolio and FDI)and the portion of countries in the world with open capital accounts (i.e.,no significant restrictions on cross-border capital movements according to the IMF).4 There is,however,one interesting divergence in these trends evident in the figure.International capital flows took off in the mid-1980s(fueled largely by mushrooming portfolio flows), with a brief blip down during the international recession at the end of the decade.But the trend to open capital accounts postdates the takeoff in capital flows by about 5 years-it was only in the 1990s that countries in large num- bers opened their capital accounts.3 This suggests that flows preceded policy change,consistent with the technological determinism thesis.5 As Rodrik(2000)and Wade(1996)have emphasized,one should not con- clude from the steep growth curves on international economic flows and pol- icy liberalization that a truly seamless worldwide market is emerging.Table 1 summarizes flows and policy data for all the countries for which data are available in the 1990s(see the appendix for the national-level data).?The first thing to note about this table is that the standard deviations for the different measures of globalization on the whole world sample (the bottom panel) were typically larger than the means on these variables,implying consider- able cross-national variation in market integration.The coefficient of varia- tion (i.e.,standard deviation/mean)was in fact only substantially less than one for trade flows.The variations in trade taxes may seem surprising given 4.International economists are quick to point out that increased international capital flows are not necessarily indicative of capital market integration (i.e.,the absence of obstacles to inter- national capital flows).But there is no consensus as to the extent to which capital markets are integrated these days.Feldstein and Horioka (1980)argued in a seminal paper that because national savings drove national investment in the 1970s OECD countries,there must have been considerable barriers to international capital movements.This result has been replicated many times (with some modifications)in the subsequent two decades.Frankel(1993)and Marston (1995).in contrast,use the relevant (covered)interest rate comparisons to argue precisely the opposite-that OECD capital markets were highly integrated by the late 1980s.Extending these analyses outside the OECD is fraught with difficulty,and preliminary results are inconclusive (Montiel.1995). 5.Though systematic data are not readily available,this liberalization trend in the 1990s is also apparent with respect to the regulation of foreign direct investment.For example,United Nations Conference on Trade and Development (UNCTAD)reported that in the 1991-1994 period there were 373 significant changes in foreign direct investment(FDI)regulations enacted in countries throughout the world,and all but 5 of these were in the direction of fewer restrictions on inflows and outflows (UNCTAD,1995,p.xx). 6.Also note that even in 1997.more than half the countries in the world still imposed signif- icant restrictions on the capital account. 7.Note that these means are unweighted averages for all countries.Hence,the flows data are not comparable with the global flows statistics reported in Figure 1. Dowrloaded from http://cps.sagepub.com at CORNELL UNIV on February 11.2008 2000 SAGE Publications.All rights reserved.Not for commercial use or unauthorized distribution

Figure 3 reveals a similar pattern with respect to international capital flows (combined portfolio and FDI) and the portion of countries in the world with open capital accounts (i.e., no significant restrictions on cross-border capital movements according to the IMF).4 There is, however, one interesting divergence in these trends evident in the figure. International capital flows took off in the mid-1980s (fueled largely by mushrooming portfolio flows), with a brief blip down during the international recession at the end of the decade. But the trend to open capital accounts postdates the takeoff in capital flows by about 5 years—it was only in the 1990s that countries in large numbers opened their capital accounts.5 This suggests that flows preceded policy change, consistent with the technological determinism thesis.6 As Rodrik (2000) and Wade (1996) have emphasized, one should not conclude from the steep growth curves on international economic flows and policy liberalization that a truly seamless worldwide market is emerging. Table 1 summarizes flows and policy data for all the countries for which data are available in the 1990s (see the appendix for the national-level data).7 The first thing to note about this table is that the standard deviations for the different measures of globalization on the whole world sample (the bottom panel) were typically larger than the means on these variables, implying considerable cross-national variation in market integration. The coefficient of variation (i.e., standard deviation/mean) was in fact only substantially less than one for trade flows. The variations in trade taxes may seem surprising given Garrett / CAUSES OF GLOBALIZATION 949 4. International economists are quick to point out that increased international capital flows are not necessarily indicative of capital market integration (i.e., the absence of obstacles to international capital flows). But there is no consensus as to the extent to which capital markets are integrated these days. Feldstein and Horioka (1980) argued in a seminal paper that because national savings drove national investment in the 1970s OECD countries, there must have been considerable barriers to international capital movements. This result has been replicated many times (with some modifications) in the subsequent two decades. Frankel (1993) and Marston (1995), in contrast, use the relevant (covered) interest rate comparisons to argue precisely the opposite—that OECD capital markets were highly integrated by the late 1980s. Extending these analyses outside the OECD is fraught with difficulty, and preliminary results are inconclusive (Montiel, 1995). 5. Though systematic data are not readily available, this liberalization trend in the 1990s is also apparent with respect to the regulation of foreign direct investment. For example, United Nations Conference on Trade and Development (UNCTAD) reported that in the 1991-1994 period there were 373 significant changes in foreign direct investment (FDI) regulations enacted in countries throughout the world, and all but 5 of these were in the direction of fewer restrictions on inflows and outflows (UNCTAD, 1995, p. xx). 6. Also note that even in 1997, more than half the countries in the world still imposed significant restrictions on the capital account. 7. Note that these means are unweighted averages for all countries. Hence, the flows data are not comparable with the global flows statistics reported in Figure 1. © 2000 SAGE Publications. All rights reserved. Not for commercial use or unauthorized distribution. Downloaded from http://cps.sagepub.com at CORNELL UNIV on February 11, 2008

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