What is the relation between economics and globalization? - Jeong Jiyoon

1. Summarize

Modern economic globalization has primarily been accelerated through the integration of international financial markets and the liberalization of capital movement. Technological progress and the easing of financial regulations have enabled cross-border investment and transactions, connecting the world economy at an unprecedented speed. This integration has positive aspects, such as boosting global growth and expanding investment opportunities.

However, the process has also increased the vulnerability of the world economy. The 'Contagion Effect', where a financial crisis in one nation rapidly spreads to others, was clearly demonstrated during the 1997 Asian Financial Crisis and the 2008 Global Financial Crisis. Furthermore, the free movement of capital often leads to a cycle of inflow and outflow of short-term speculative funds (Hot Money), causing serious instability in developing economies. In the end, economic globalization has become an essential task, while increasing efficiency, risk management, and cooperation at the global level.

2. Something new and interesting

The most new and interesting point was the dual meaning of 'Financial Deepening'. This concept refers to how developed and sophisticated a country's financial system is relative to its economic size. While financial deepening generally boosts economic growth by activating lending and investment, I learned that in the age of globalization, this very deepening can amplify risk. As the financial system becomes more complex (deeper), the speed at which a crisis spreads both internally and externally accelerates, making control far more difficult. This suggests that simply deregulating is not the answer; rather, building a sound and healthy financial system is the true safety net in the era of globalization.

Another intriguing aspect was the analysis of the 'Changing Role of the Hegemonic State'. Historically, a hegemonic nation, like the U.S., dominated global financial stability and acted as the 'Lender of Last Resort' by providing liquidity during a crisis. However, as the world economy becomes increasingly multipolar, it's becoming challenging for any single nation to shoulder this role entirely. This implies that the role of multilateral international organizations like the IMF (International Monetary Fund) has become significantly more important, prompting me to reconsider their resources and the necessity of their reform.

3. Questions and discussions

The freer the movement of capital, the harder it becomes for a nation to independently pursue its own monetary policy (such as setting interest rates). Given that developing countries are particularly vulnerable to global capital flows, should they strengthen capital controls to protect their economies, or should they maintain liberalization in line with international standards?

Furthermore, when a financial crisis occurs, the costs are often passed on primarily to the socially vulnerable and taxpayers. Since the benefits of financial globalization are largely concentrated among the elite and large financial institutions, while losses are borne by society as a whole, how can we address this 'socialization of risk'? Is there a need for new, global-level regulatory mechanisms to strengthen the ethical responsibility of financial institutions?

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