In practice GATT became the international organisation which set the framework for several important steps towards increased global free trade, particularly via successive reductions in industrial tariffs.īut by 1970 the Bretton Woods system was coming under increasing pressure. In addition a special agreement, the General Agreement on Tariffs and Trade (GATT) became operative in 1948.

Two organisations were established during this period, the World Bank (IBRD) and the International Monetary Fund (IMF). The Bretton Woods system was based on governmental control of the international flow of capital. Before World War I the international flow of capital had been free. In an important aspect, the post World War II international economy was less open than the period prior to World War I. The 'Bretton Woods system' meant that nations had fixed currency exchanges in relation to the US dollar, which in turn was fixed to the gold standard. The USA was now the leading economy in the world and the dollar became the monetary basis of the financial system. Cooperation was based on the Bretton Woods Agreement of 1944. International regulations and organisations to support economic integration at the global level were created after World War II. The kronor had the same value in all three Scandinavian countries and the currency in each of the countries could be used interchangeably in daily transactions. Two years later Norway joined the Scandinavian monetary union. Sweden and Denmark established a monetary union based on the gold standard and with the kronor as the monetary unit. During the nineteenth century the English pound sterling was the generally accepted currency of international business and many other countries introduced the gold standard. Great Britain had introduced the gold standard in 1816, which meant that their currency gained a stable value in relation to gold. Many other European countries subsequently aligned themselves with this free trade system.

The basis for the European free trade system was the 1860 free trade pact between Great Britain and France. Great Britain was the world's leading economy. After 1820 it increased by 3.5 percent and during the nineteenth century as a whole, trade in Europe increased by 40 percent. During the period 1500-1800, world trade increased by about 1 percent per year. Important drivers behind this wave of globalisation were both the new technology of the era that could bridge long geographical distances and the fact that many countries began to embrace liberal trade policy after years of protectionism. Roughly 60 million people left Europe to seek their fortunes in the New World. Even international migration was greater than it is today. In some respects financial integration was more pronounced than it is today. Capital moved relatively freely between countries. From 1860-1914 Europe and North America were strongly affected by internationalisation.

Five major drivers of globalization