Integration and Managing Economic Activity Essay

505 Words3 Pages
Integration and Managing Economic Activity Does increased integration, particularly in the financial sphere make it more difficult for governments to manage economic activity, for instance by limiting governments' choices of tax rates and tax systems, or their freedom of action on monetary or exchange rate policies? If it is assumed that countries aim to achieve sustainable growth, low inflation and social progress, then the evidence of the past 50 years is that globalization contributes to these objectives in the long term. In the short-term, as we have seen in the past few years, volatile short-term capital flows can threaten macroeconomic stability. Thus in a world of integrated financial markets, countries will find it…show more content…
This exposes the country to the risk that when perceptions change, there may be a sudden brutal withdrawal of capital from the country. In short, globalization does not reduce national sovereignty. It does create a strong incentive for governments to pursue sound economic policies. It should create incentives for the private sector to undertake careful analysis of risk. However, short-term investment flows may be excessively volatile. Efforts to increase the stability of international capital flows are central to the ongoing work on strengthening the international financial architecture. In this regard, some are concerned that globalization leads to the abolition of rules or constraints on business activities. To the contrary—one of the key goals of the work on the international financial architecture is to develop standards and codes that are based on internationally accepted principles that can be implemented in many different national settings. Clearly the crises would not have developed as they did without exposure to global capital markets. But nor could these countries have achieved their impressive growth records without those financial flows. These were complex crises, resulting from an interaction of shortcomings in national policy and the international financial system. Individual governments and the international community as a whole are taking steps to reduce the risk of such crises in
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