Globalization, in the sense of increased integration of international markets, has waxed and waned throughout history. Most recently, it thrived between the middle of the nineteenth century and World War I, languished and retreated until about 1970, and has thrived again since then. What have we learned from this experience? In eras of increasing globalization, technological change and reduction of barriers increased trade and caused international price convergence. In general, as barriers to trade diminished, so did barriers to international migration, leading to an increasingly integrated global market for skilled labor. Integration of capital markets corresponded in time with trade and migration, with flows increasing, decreasing and increasing again. However, the characteristics of modern capital flows are significantly different from previous eras of globalization. In general, it appears that countries that take advantage of free movement of goods and services, labor and capital can thrive in the aggregate. However, sound macroeconomic policies are necessary. Although the number of individual gainers appears to outnumber losers in increased globalization, it is possible that the losers can create a backlash that will once again cause a retreat.
