Globalisation refers to increasing economic interdependence between countries, characterised by rising:

This definition extends standard trade theory into a broader framework where markets are integrated not only through exchange, but through production fragmentation, multinational activity and institutional integration.

When transport, communication or policy barriers fall, countries can specialise more deeply according to comparative advantage, firms can exploit economies of scale, and value chains can fragment geographically.

From a general equilibrium perspective, falling trade costs increase:

However, they may also increase:

Globalisation is not new. It has occurred in distinct waves, usually driven by technological breakthroughs.

The images illustrate the infrastructure of early globalisation. Steam locomotives and transoceanic liners drastically reduced transport time and cost, while refrigerated shipping allowed perishable goods to be traded internationally. This expanded the feasible set of traded goods and deepened comparative advantage patterns.

World exports remained relatively flat for centuries before accelerating sharply in the 19th and 20th centuries. The figure shows a structural break consistent with technological change.

Key implications:

The pre-1914 period marks the first modern globalisation surge, interrupted by world wars and protectionism.

The map shows dramatic reductions in travel time across global routes. Time is a trade cost. Reducing it lowers:

This improves feasibility of complex production networks.

The reaction of New York cotton prices to Liverpool news illustrates near-instant information transmission.

Price differentials narrowed significantly after the telegraph.

Economic meaning:

Trade integration is not only about moving goods but synchronising markets.

Post-war trade growth was extraordinary. Manufacturing trade expanded faster than GDP.

Air freight costs collapsed between 1955 and 2004.

Implications:

Technological change interacted with trade liberalisation, particularly through GATT (1947) and later the WTO (1995).

These institutions reduce policy uncertainty and enforce reciprocal liberalisation.

Trade agreements reduce tariffs, harmonise standards and lower non-tariff barriers.

The figure shows falling world tariffs alongside rounds of GATT/WTO negotiations. Tariff reductions are institutionalised through negotiation rounds, producing cumulative trade liberalisation.

Economic insight:

Trade participation is highly concentrated.

This aligns with Melitz-type models:

Modern trade increasingly involves intermediate inputs rather than final goods.

The iPad example shows components sourced from multiple countries. Value added is distributed across the globe.

The Boeing 787 demonstrates extreme production fragmentation.

Economic meaning:

Separate components converge into a final assembly node.

Characteristics:

Sequential value addition across countries.

Characteristics:

Many industries combine both structures.

Multinationals account for the majority of trade flows.

Key points:

Ownership structure therefore shapes global trade patterns.

Trade-to-GDP ratios have plateaued since the Global Financial Crisis.

Interpretation:

Trade was resilient during Covid, rebounding quickly after initial collapse.

However, recent trends include:

Globalisation:

Antràs, P. (2016) Global Production: Firms, Contracts, and Trade Structure. Princeton: Princeton University Press.

Antràs, P. (2024) Lecture materials on global value chains.

Bernard, A.B., Jensen, J.B., Redding, S.J. and Schott, P.K. (2009) ‘The margins of US trade’, American Economic Review, 99(2), pp. 487–493.

Handley, K., Kamal, F. and Monarch, R. (2019) ‘Rising import tariffs, falling export growth: When modern supply chains meet old-style protectionism’, NBER Working Paper No. 26611.

Hummels, D. (2007) ‘Transportation costs and international trade in the second era of globalisation’, Journal of Economic Perspectives, 21(3), pp. 131–154.

Pascali, L. (2017) ‘The wind of change: Maritime technology, trade, and economic development’, American Economic Review, 107(9), pp. 2821–2854.

Steinwender, C. (2018) ‘Real effects of information frictions: When the States and the Kingdom became United’, American Economic Review, 108(3), pp. 657–696.,