During the past two centuries and following the Industrial Revolution in England, expansion of global production and trade and acceleration of global economic growth has been intertwined with international developments. This phenomenon is a result of two-way effects and bilateral interactions between growth and international integration. Bigger markets led to specialization of production and new system of division of labor emerged with new facilities for learning and innovation. The result was technological changes including reduced cost of transportation and communications as well as integration of international markets.

The main political feature of this period in the field of global exchanges was based on a free trade approach. Afterwards, other European countries, Japan and the United States, through an approach which was a combination of protectionism and economic freedom, aimed at strengthening industrial bases and boosting commercial influence in international markets and gradually provided grounds for establishment and empowerment of economic globalization process as well as expansion of exchange of goods, capital and knowledge with suitable characteristics conforming to exigencies of time. From a historical viewpoint, the world has been witnessing three waves of globalization since the second half of the 19th century, each of which has enjoyed its special industrial development attitudes:

The first wave of globalization (1870-1910) was characterized by new division in the field of production and trade at the level of countries producing industrial goods and countries producing and supplying raw materials. The main factors propelling this wave were liberalization of trade exchanges in Europe, existence of monetary institutions, free flow of migratory manpower, on the one hand, and reduced cost of transportation along with development of railroad and sea transport, on the other hand. In that period, proportion of trade to global production increased from about 10 percent in 1870 to about 18 percent in 1914 and almost doubled. During those years, growth of global exports (at annual rate of 3.5 percent) was much higher than growth of global production (which stood at 2.7 percent per year). Proportion of exports to global production reached a point in 1913, which remained a peak up to 1970. During the same year (1913), average rate of tariffs considered for industrial goods was zero percent in England, 4 percent in the Netherlands, 14 percent in Germany, 5 percent in India and 3 percent in Iran.

Within the framework of global trade, corporate relations played a major role and flow of foreign direct investment became a major factor for connecting to global market and globalization trend.

During those years, a lot of capital flowed from western European countries to undeveloped and developing countries of the world in the Americas, Asia and Australia. Ratio of capital export to gross national product in England during that period reached about 9 percent and the same situation prevailed in other major capital exporting countries such as Germany, France and the Netherlands. Before World War I, there was no limitation on the way of private capital flow and transfer of capital. An important part of capital transfer, which was attraction of capital for financing railroad projects and other affairs as well as other infrastructural activities in the modern world, was carried out through borrowing. However, during the same years, capital transfer in the form of foreign direct investment was remarkable. Narrow gap between real interest rates in British and American capital markets was an indication of the level and depth of integration of global capital market. Money based in gold, which is the main criterion for exchanging various currencies, was a major reason behind this integration. Share of Western Europe from total foreign direct investment (according to country of origin) stood at 75.4 in 1914, with Britain alone accounting for 44.6 percent. Undeveloped countries had no share of capital export.

Although technological developments, expansion of marine and rail transport and subsequent reduction of transportation costs played a role in the course of the first wave of globalization, trade and financial liberalization current in Europe played a relatively much more important role compared to the aforesaid factors. During that period, England, France and Germany played a dominant role in capital export while Argentina, Australia, Brazil, Canada, India, Mexico, Russia, and the United States were among major importers of capital. Most investments during the first wave of globalization were made in the field of primary economic activities and exploitation of natural resources (mines, oil, agriculture…) and countries exporting capital did not pay attention to economic and industrial development of countries attracting capital (except for such countries as Australia, New Zealand, and the United States).

In addition to transfer of capital with the goal of taking advantage of land and other natural resources, during the said period, transfer of inexpensive workforce in the form of mass immigration surfaced as a major trend. During 1820-1914, about 60 million people left European countries for North America and Australia. Also, migration from such countries as China and India to less populated countries like Sri Lanka, Myanmar (former Burma), Thailand, Philippines and Vietnam, has been assessed in some estimates to roughly equal migration between Europe and the New World so that in the first wave of globalization, the number of migratory labor force accounted for about 10 percent of the world’s population. Developments in this period in the field of transferring capital and workforce, expansion of trade and global integration, were effective factors in accelerating average growth of per capita income in the world from 0.5 percent per year in 1820-1870 to 1.3 percent per year during the 40-year period from 1870 to 1910.

The first wave of economic globalization with all mechanisms that were mentioned here was faced with a return to protectionism and closing national economies during decades from 1910s to 1950s due to three major crises including the First World War (1914-1918), global economic crisis (1929-1932) and the Second World War (1939-1945).

After breakout of World War I, countries engaged in hostilities resorted to quantitative and non-tariff limitations in order to control trade exchanges. Also, in 1929 and following major economic crises in many countries, they increased their trade tariffs in parallel to reducing price of agricultural products. In June 1930, the United States passed special laws to boost its import duties by 23 percent, which elicited retaliatory measures from other countries. On the whole, during that period apart from various types of tariffs, different quantitative and non-tariff limitations were imposed to provide economic motivations. On the other hand, with the onset of World War I, the basic system of gold in countries involved in the war was suspended and foreign exchange controls were established, thus considering obstacles for entry and exit of capital. Adoption of protectionist and nationalistic policies: 1) decreased share of exports to global production to about 5 percent in 1950, restoring 1870’s figure; 2) reduced foreign capital in developing countries compared to global production to about 4 percent in 1950, which was much lower than 1870; 3) anti-immigration sentiments in the context of nationalism in various countries caused considerable limitations to immigration and transfer of labor force; so that, immigration to the United States fell from 15 million in the previous period to 6 million between 1914 and 1950.

While share of industrial exports of developing countries from their total commodity exports stood at only 25 percent in 1980, that share increased to about 80 percent in the concluding years of the 20th century.

In the second wave of globalization (1950-1980), after termination of the Second World War and following reduction of trade barriers among advanced countries and establishment of international institutions (GATT, International Monetary Fund, World Bank) as well as due to participation of the United States in the reconstruction of Europe and Japan and so on, trade among advanced countries took up much speed from 1960 to 1980. In those years, despite emergence of new industrial development tendencies in undeveloped countries, they generally failed to avail of considerable trade current in that period due to mainly internalized political approaches. At the same time, trade liberalization among developed countries was such that it led to basic limitations in the course of international integration both from the viewpoint of goods inclusion, and from the standpoint of including major world countries. Existence of trade barriers in advanced countries which meant to limit import of primary goods and industrial products of developing countries as well as existence of protectionist obstacles in non-industrial countries caused the trend of globalization to be limited to advanced industrial states. During that age of globalization which has been known as the golden age of accumulation, only advanced industrial states availed of raid growth of exchanges, especially trade exchanges, and developing countries that were in early stages of economic development failed to take practical part in the process of international trade and capital exchanges through adopting import replacement strategy. However, some of those countries including South Korea, Taiwan, Singapore… took timely steps to review that strategy and adopt another, externalized one to pave the way for joining to and availing of the global current in their national economies. In this way, they brought about their indigenized industrial development trends and broke new grounds with regard to economic and industrial development to emerge as a model for continued industrialization of developing countries through an externalized approach, economic liberalization, trade liberalization, and preparation for attraction of foreign capital.

During the second wave of globalization, transportation costs diminished in parallel to reduction in trade barriers in advanced industrial states; so that, from 1950s to late 1970s, marine transport fares were reduced by one-third and proportion of global trade to production was doubled and it nearly approached peak performance during the first wave. However, during this period, international exchange of capital and transfer of labor force at global level fell short of the first wave’s performance. The result of performance of globalization trend in that period failed to bring about major changes in terms of international division of labor and commercial relations between advanced and developing countries; so that, relationship between the two group of countries is still based on exchange of manufactured industrial goods in return for primary goods relying on natural resources and land. In 1980 and at the end of the second wave of globalization, ratio of industrial exports of developing countries to total commodity export of those countries never surpassed 25 percent. The main characteristic of that period from the viewpoint of industrial development of the world, was expansion of markets along with diversification of industrial goods as well as specialization and importance of benefits resulting from concentration of industrial activities; emergence of interconnected industrial clusters and economy of scale in industrial production in advanced countries. This tendency for developing countries meant that in the process of industrial development of all developing countries in the future, role of land, natural resources and inexpensive manpower will lose in importance while consequences of establishment of industrial clusters as well as requisite infrastructures and institutions will gain importance in terms of reducing costs and achieving mass production aimed at exports.

Countries that first joined the globalization trend in the course of the third wave of globalization are those countries that availed of inexpensive manpower and, as a result, benefited from their comparative advantages to produce labor-intensive industrial goods as well as in the service sector.

In the second wave of globalization, the process of inter-sectoral industrial trade among advanced countries became more pronounced and, simultaneously, due to increased cost of production resulting from concentration of industrial activities in those countries, the way was paved for transfer and relocation of activities to take advantage of less expensive production factors. This transfer, during the second wave of globalization, was generally restricted to inside of industrial countries and did not spread to developing states. An instance is transfer of the American textile industries from northeastern to southern states.

The third wave of globalization (1980 onwards) was characterized by special features, which took global economy forcefully and more rapidly into a new orbit of international convergence and integration. In the third wave of globalization, a bigger part of the world and higher number of independent and developing countries with total population of about 3 billion people took active part or made changes to their economic and industrial structures through assimilation into production and commercial institutions of advanced industrial states which enabled them to achieve a considerable share of global trade. While share of industrial exports of developing countries from their total commodity exports stood at only 25 percent in 1980, that share increased to about 80 percent in the concluding years of the 20th century (1998), which indicated a major change over a relatively short period of time. On the whole, this development was more rapid in Asian countries compared to other parts of the world and proportion of industrial exports to total commodity export in this region reached about 85 percent in 2000. Among countries that experienced major changes in composition of their exports during the last two decades of the 20th century (1980-2000), one can mention the following examples:

• China from 40 percent to 88 percent;

• Poland from 61 percent to 80 percent;

• Hungary from 65 percent to 86 percent;

• Philippines from 21 percent to 92 percent;

• Singapore from 47 percent to 86 percent;

• Mexico from 12 percent to 83 percent;

• Turkey from 27 percent to 81 percent;

• Malaysia from 19 percent to 80 percent;

• Thailand from 25 percent to 76 percent;

• India from 59 percent to 79 percent (in 1999);

• Pakistan from 48 percent to 85 percent.

This group of countries succeeded in the last two decades of the 20th century to increase share of their industrial exports from total export goods to a level higher than the global average; that is 75 percent. Countries like South Korea, Taiwan, and Hong Kong, which started their industrial development process simultaneous with international integration during the second wave of globalization; generally increased share of their industrial exports in 1980-2000 to higher than 90 percent. Among developing countries, there was another group that despite growing share of industrial exports, its performance during the last two decades of the 20th century and in 2000 was lower than the world’s average, including: