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World Finance and Economic Stability

Selected Essays of James Tobin

James Tobin

Nobel Prize winner James Tobin has made outstanding contributions to modern macroeconomics. In this final collection of his work he examines the economic policies of the United States and its relations with other major economies after 1990. In James Tobin’s view, the welfare of populations depends uniquely on these policies and it is important to be aware of their impact.
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Chapter 2: Financial globalization

James Tobin


* Globalization is a fashionable word to describe trends perceived to be dramatically and relentlessly increasing connections and communications among people regardless of nationality and geography. These trends are a general source of amazement and excitement, often of pleasure, often of fear. In the economic sphere, markets are less and less segmented by national boundaries. Both buyers and sellers face wider horizons of opportunity, and by the same token new sources of competition. Globalization affects markets of three kinds: (l) commodities – goods and services of all varieties; (2) labor – workers who produce goods and services; (3) assets and debts – securities, bank loans and deposits, titles to land, and physical capital. Markets of the third type are the subject of my discussion of financial globalization. The speakers who follow will have much to say about other kinds of markets and other aspects of globalization. Trades of financial assets are the easiest to globalize. Nothing is involved beyond exchanging pieces of paper or making entries in electronic ledgers. The communications revolution makes transactions easy, fast, and cheap. No movements of physical goods or of people are involved. No frontiers have to be crossed. The only barriers are national regulations. As these have been liberalized in country after country, international financial flows have flooded into national securities markets and banking systems all over the world. These flows could be the vehicles by which savings in the advanced capitalist democracies are channeled into productive capital investments in the developing countries of Asia, Africa, and...

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