Introduction

The acceleration of globalization in the 1980s began with the revival of classical liberal economics, as Keynesian policies reached their demise. Faced with the stagflation crisis of the 1970s and the first oil crisis, Ronald Reagan and Margaret Thatcher restarted economic growth by freeing trade and investment. They cut income taxes, especially for the wealthy, deregulated and privatized the economy, reduced the power of trade unions, weakened the welfare state and lifted barriers to trade and investment at home and abroad, therefore raising incentives for investment. Many underdeveloped countries faced similar crises at the time, especially those following import substitution models, and fell into debt through rising interest rates and oil prices. Essentially the same macroeconomic and growth policies were applied in underdeveloped countries, following what became known as the Washington Consensus (Williamson 1990). In addition, when the Berlin Wall fell in 1989, the end of the Cold War created a global market economy. As free trade and investment treaties proliferated, globalization accelerated. In particular, foreign direct investment (FDI) increased worldwide at an average rate of almost 28 per cent a year from 1983 to 1998. Thus, freer markets and a reduced government role in both developed and underdeveloped countries released a fresh wave of globalization. The new schools of economic thought produced theories implying that free trade and FDI would lead to the equalization of growth rates and production levels across countries.