Contemporary Financial Globalisation in Historical Perspective: Dimensions, Preconditions and Consequences of the Recent and Unprecedented Surge in Global Financial Activity
The subject of this thesis is financial globalisation in historical perspective, and its key contribution is to demonstrate the J-curve as an alternative depiction of financial globalisation since the classical Gold Standard period. As a preliminary and essential step, some definitions and clarifications on globalisation are provided in a literature review. Then, fundamental issues are considered to assess financial globalisation, so that both the goals and the boundaries of the thesis are clearly stated. Throughout the historical period in debate, there were two waves of financial globalisation: the first one occurring during the 1870-1914 period, and the second lasting from the end of the Bretton Woods agreements until the present day. The dominant approach in economics asserts that the degree of commercial and financial integration corresponds over time to a U-shaped pattern, i.e. markets presented high levels of integration during the forty years before WWI. Then, this integration collapsed in the years between the wars, recovering gradually after the Bretton Woods agreements until it reached again in the 1990s the same pre-1914 level of integration. The thesis approaches this model focusing on the financial side. Then, according to the U-curve, contemporary financial globalisation is not unprecedented. This thesis proposes an alternative view. In contrast to the mainstream U-curve, the empirical data provided indicates that today’s financial integration is unprecedented and more pervasive in some key financial markets than it was during the pre-1914 era. The empirical evidence provided proposes that a J-shaped pattern is a more appropriate way to interpret how financial markets have evolved since the late 19th century. The Jshape suggests that in some financial achieved a huge surge from the 1990s to 2005, surpassing the previous level of integration. So, in these markets, contemporary financial globalisation is unprecedented from the 1990s onwards. The J-curve does not mean that all financial markets became more globalised during the late 20th century in comparison to the Gold Standard era, but only some that presented the U-shape from 1870 to 1995. Qualitative aspects of the J-curve are examined. The different institutional frameworks underlying each historical period are discussed revealing that new institutional arrangements, policy changes, technological advances in ICT and a wide range of financial innovations are the key driving forces that have spurred today’s financial globalisation to higher levels than in the past. Finally, the last chapter assesses the key macroeconomic implications of this new era for the world economy.