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Daily RC Article 136

National Policies and Global Connectivity: A Macroscopic View

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Perhaps globalisation is a process that has been, in some sense, constrained by the authority of the nation-states, particularly in the twentieth century. It may be useful to touch upon the role of the public policy of nation-states in the context of globalisation. After the emergence of nation-states, each nation-state perceived that it was in its collective self-interest to promote or restrict involvement with citizens of other nation-states. While developments in technology enabled and accelerated the movements of goods, people and services, the policies of many nations tended to impose restrictions. A nation-state is presumed to restrict its citizens' involvement with other nation-states with only their collective self-interest in mind. It is, however, not easy to define what is in the collective self-interest of all its citizens or whether it is in the interest of only a few at the expense of others. In the context of public policy relating to globalisation, a critical issue is the trade-off between individual freedom and collective self-interest, and also whether the burden of proof lies with the individual or with the national authorities.

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At a conceptual level, a distinction can be made between technology-enabled (or induced) globalisation and public policy induced restrictions or easing of restrictions. Globalisation has several dimensions, arising out of what may be called enhanced connectivity among people across national borders. Such enhanced connectivity is determined by three fundamental factors, viz., technology, individual taste and public policy. Cross-border integration can have several aspects: cultural, social, political and economic. For the purposes of this discussion, however, only economic integration is considered. Broadly speaking, economic integration occurs through three channels, viz., movement of people, of goods and of finance or capital.

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First, with regard to the movement of people, the most notable achievement of recent globalisation is the freedom granted to many, if not all, from the tyranny of being restricted to a place and being denied the opportunity to move and connect freely. Second, with regard to trade in or movement of goods across national boundaries, two types of barriers are generally described, viz., natural barriers (i.e., barriers due to natural formations) and artificial barriers (i.e., barriers due to economic policies). Of late, while multilateral trade agreements are encouraging reduction in such artificial barriers, developments in technology are also making it difficult for national authorities to enforce artificial barriers. The pace and nature of globalisation will naturally depend on the combined effect of technology and public policy, both at the national and international levels. The third dimension relates to capital movements, for which, too, the interplay between technology and public policy becomes relevant. There have been, however, some special characteristics of capital flows in recent years, led mainly by revolutionary changes in telecom and computing capabilities. These have highlighted the phenomenon of what is described as 'contagion’, which implies the risk of a country being affected by developments totally outside of its policy ambit, although the domestic policy may, to some extent, influence the degree of its vulnerability to the contagion.

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…In any case, cross-border flows of capital have wider macroeconomics implications, particularly in terms of the exchange rate, which directly affects the costs involved in the movement of people as well as goods and services, and also in terms of the conduct of monetary policy and the efficiency as well as stability of the financial system.

This piece examines the interplay between nation-states and globalisation, noting how public policies have both facilitated and constrained the process. It delves into the impact of technological advancements on global connectivity, particularly in the economic realm, focusing on the movement of people, goods, and capital across borders. The discussion highlights the trade-offs between individual freedom and national collective interests within the context of globalisation and sheds light on the macroeconomic implications of cross-border capital flows.
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