The term "global economy" seems to have emerged in general usage around 1990 but the meaning of the concept is not clear. Taken literally, it would mean there is a single economy in the world and that national borders do not matter. This is palpably not the case. Nations still exist and exert national sovereignty over many areas of policy. However, there is a growing questioning of the role of nations in an increasingly interdependent world. The goal of this paper is to examine the extent to which national sovereignty has been eroded and, more particularly, to explore the fundamental forces of deeper integration which are causing the role of nations to change in areas of policy that impinge on international transactions. Since about 1950 there has been a steady liberalisation of world trade in goods and services, capital is more mobile internationally, and there are fewer restrictions on foreign exchange market transactions. These trends apply to almost every national economy in the world, both Developing and Developed countries alike. (For Developing countries, Drabek and Laird, 1998 provide a summary and for Developed countries, see OECD, 1997. For empirical evidence relating to the Asian region, a convenient review is provided by Asian Development Bank, 1999. For the broad-sweep of history, see the excellent survey by Sachs and Warner, 1995.) The trend to liberalisation of border barriers to trade is the driving force behind the formation of a global economy.1 In the context of discussion of the global economy and national sovereignty, the important consequence of liberalising the movement of goods and services and assets is the formation of global markets. The concept of the existence of a global market for some commodity is less clear than it seems. It does not merely mean that the commodity is sold on the markets of all (or nearly all) the countries in the world. This can hold and yet national markets can be segmented. For example, quantitative restrictions such as import quotas segment markets in that, given the fixed quantities of imports, the quota-protected national markets clear independently of other national markets. Quantitative restrictions were widespread among Developed countries until the 1980s and are still common among Developing countries. On the other hand, tariffs and other price-based wedges create differences between the prices in different markets of different nations but they do not segment national markets.
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