Globalisation has become a major topic of discussion and concern in economic circles since the mid-1990s. It is clear that the trend toward more integrated world markets has opened a wide potential for greater growth, and presents an unparalleled opportunity for developing countries to raise their living standards. At the same time, however, the economic   crisis has focused attention on the downside risks of this trend, and concerns have arisen about the risks of marginalisation of countries. All of this has given rise to a sense of misgiving, particularly among developing countries.

So what is "globalisation"? What are its implications for the conduct of economic policy, particularly in Africa ? What are its potential benefits and risks? What will developing countries have to do to benefit from it, to avoid its downside risks? Is there any good reason to fear globalisation? To answer these and other questions, it would be useful first to explain what globalisation is, and what it is not, what has caused it, and what effects it has had. Situating the discussion in this context will make it easier to identify the benefits and the true risks of the trend to global integration and, in turn, to determine the correct policy response.

Globalization is first and foremost a result of the expansion, diversification and deepening of trade and financial links between countries, especially over the last ten years. This reflects above all the success of multilateral tariff reduction and trade liberalisation efforts. The Bretton Woods institutions (IMF and World Bank) should play a key role in encouraging current account convertibility as a basis for the expansion of world trade, and more than two-thirds of the fund's member countries have committed themselves to this principle by accepting the obligations of Article VIII. Also, economic thought itself has evolved over time, toward the general acceptance of the fact that outward- oriented and open economies are more successful than closed, inward-looking ones. Consequently, more than at any time previously, individual countries in all parts of the world are liberalising their exchange and trade regimes in the conviction that this is indeed the best approach for growth and development. Moreover, there is a deeper commitment of national authorities throughout the world to sound macroeconomic policies, and to creating a more stable environment for investment and the expansion of economic activity. Finally, with the increasing liberalisation of financial markets, and their growing sophistication, capital markets have become integrated, and capital flows are now largely driven primarily by considerations of risk and return.

The benefits of these developments are easily recognisable-increasing trade has given consumers and producers a wider choice of low-cost goods, often incorporating more advanced technologies, and facilitated a more efficient use of global resources. Greater access to world markets has allowed countries to exploit their comparative advantages more intensively, while opening their economies to the benefits of increased international competition. The rapid increase in capital and private investment flows has raised the resources available to countries, and accelerated the pace of their development beyond what they could otherwise have achieved.

Moreover, greater openness and participation in competitive international trade have increased employment, primarily of skilled labour, in tradable goods sectors. With the expansion of these sectors, unskilled labor has found increased employment opportunities in the nontradable sectors, such as construction and transportation. The expansion of merchandise trade may also have lessened migrationary pressures. On the other hand, the movement of labour across national boundaries has in many cases lessened production bottlenecks, raising the supply response of recipient economies, and increasing income in the supplying countries through worker remittances. Openness to foreign expertise and management techniques has also greatly improved production efficiency in many developing countries.

But there are also risks to globalisation. The ability of investment capital to seek out the most efficient markets, and for producers and consumers to access the most competitive source, exposes and intensifies existing structural weaknesses in individual economies. Also, with the speedy flow of information, the margin of maneuver for domestic policy is much reduced, and policy mistakes are quickly punished. Indeed, increased capital mobility carries the risk of destabilising flows and heightened exchange rate volatility, in cases where domestic macroeconomic policies are inappropriate. And finally, it is clear that countries that fail to participate in this trend toward integration run the risk of being left behind.