Tighter global economic integration has been hugely beneficial. Managing the financial asset and liability positions built up through trade induces still deeper financial linkages, including international trade in financial services. Firms may build capacity in a foreign country with an attractive skill or resource base in order to export from there. Trade denominated in a foreign currency can require hedging, with counterparties accumulating international positions. Banks with international operations underpin trade financing and follow their customers into foreign markets. Trade integration not only relies on, but generates, financial linkages. Trade and financial openness are deeply symbiotic. Adjustment costs and financial risks need to be carefully managed, but they do not justify a backlash against globalisation. This chapter outlines how increased economic globalisation - tighter trade and financial integration - has contributed to a remarkable increase in living standards. Indeed, globalisation has faced more severe criticism than technological innovation and other secular trends that have potentially had even more profound consequences. Nevertheless, despite its substantial benefits, it has been blamed for many shortcomings in the modern economy and society. Globalisation has had a profoundly positive impact on people's lives over the past half-century. Global currencies call for international cooperation, effective crisis management and more systematic consideration of cross-border spillovers and spillbacks. Completing international financial reforms is one priority. And international cooperation must supplement such policies in order to address global linkages. Properly designed domestic policies can enhance the gains from globalisation and mitigate the adjustment costs. Moreover, financial openness exposes economies to destabilising external influences. For example, globalisation has coincided with rising withincountry income inequality in some countries, although the evidence indicates that technology has been the main driver.
Like any other form of far-reaching economic change, globalisation poses challenges. Together, international trade and finance have enhanced competition and spread technology, driving efficiency gains and aggregate productivity. Tighter trade and financial integration are deeply intertwined: international trade not only relies on, but also generates, financial linkages. Economic globalisation has contributed to a substantial rise in living standards and falling poverty over the past half-century.