More than 100 years ago; that is, in late 19th century and early 20th century, international economy witnessed the highest level of relative freedom for transport of goods, services and capital in the modern age following the first wave of globalization (1870-1914). During the last decades of the 19th century, which are known by economic historians as the "Golden Years" of Europe, per capita revenues of most European countries more than doubled.

Technical and technological developments as well as changing trade policies of some industrial countries had profound effects on economic and trade growth of the world. Taking advantage of electricity, new communication methods (telegraph and telephone) as well as new means of transportation (especially marine routes) were major technical factors which promoted economic development of the world.

Statistics related to those years show that the costs of transport between the United States and Europe during those years, decreased from 80 percent of total price of commodities to 20 percent. Those technical changes were followed by reduction in trade and tariff barriers among most European countries. For example, industrial and agriculture tariffs in England were reduced to zero by 1914. As a result of those factors, global trade grew at an average rate of 3.4 percent between 1870 and 1914.

Simultaneously, integration of global capital markets increased in an unprecedented manner in early 20th century and foreign owned assets accounted for about 20 percent of the world’s gross domestic product. England, as the major banking hub of those years, owned 80 percent of foreign assets across the world. Between 1870 and 1914, exit of capital averaged 4.5 percent of gross domestic product of those countries and in some years, it even reached as high as 10 percent. In general, growth of actual revenues, growth of world trade and integration of global economy, both through eliminating artificial trade barriers such as tariffs, and through reducing transportation costs, are considered as major indicators of the first wave of globalization. Those developments resulting in great improvement in standards of living in advanced countries.

By early 18th century, living standards of people in various parts of the world were almost similar. However, by the end of the 19th century, and due to rapid economic growth in industrial states, countries were divided into two rich and poor groups.

Breakout of the First World War led to economic stagnation and stopped the first wave of globalization.

Due to interruption of transpiration routes and, especially, due to high inflations in various countries due to high costs of war, integration of countries in international economy was reversed.

Despite efforts made to restore past conditions after the end of the world war I, due to lack of structural balances in the European economy and high value of pound Sterling when England returned to gold-based monetary system in 1925, as well as due to heavy remuneration that Germany had to pay and other economic maladies, economic growth was quite slow in 1920s. Occurrence of Great Depression worsen that trend. Real revenues of many countries took a nosedive and unemployment exacerbated. Price of goods and service slumped remarkably and policies adopted in reaction to those developments only made the situation worse. The main characteristics of 1930s was increased customs tariffs and non-tariff barriers as well as devaluation of currencies in most European countries.

Policies which were known as "make you neighbor poor", led to rapid decrease in trade and price of tradable goods.

The biggest blow dealt to global trade was from the United States, which approved a low that increased average customs tariffs of that country to 59 percent by 1932.

The law, which led to the highest tariff rates in the United States after the 19th century, further worsened the Great Depression. Major feature of international political economy in those years was unilateral measures taken by other countries. Although, signs of improvement and prosperity were gradually seen in global economy in the late 1930s, the beginning of the Second World War and the need to meet wartime demands, once again interrupted production and trade models. In general, the global economy was less integrated in 1945-46 than finishing years of the First World War. The United States, Canada, Australia, and few other industrial states were not damaged by World War II as a result of wartime conditions as well as protectionist and isolationist policies adopted by those countries in 1930s. At the same time, the war had wreaked havoc to Europe, the former Union of Soviet Socialist Republics, China and Japan. The Soviet Union and China took a different economic turn compared to other countries. As a result, there were three major economic trends in the world in the wake of the World War II. The first group comprised industrial (European) countries whose production had been seriously damaged and their production structure had changed. The second group comprised undeveloped countries most of whom exported raw materials to warring countries and had amassed considerable foreign exchange reserves (because imports were greatly limited during the war). The third group consisted of countries that had separated their economies from global economy through establishing a centralized economic system. Of course, the third trend fell apart in 1990s and following disintegration of the former Soviet Union.

When planning for post-war years started, the global economy was characterized by the following features:

1) The United States had emerged as the world’s strongest economic power.

2) Europe and Japan were badly damaged by war and needed many resources for reconstruction.

3) Countries had concluded that mistakes 1930s should be prevented from being repeated through bolstering multilateral cooperation through establishment of a suitable world body.

4) There was no way to supply long-term private investments after experiences of 1930s.

Post-war planners presented a frame for international economic cooperation and establishment of international institutions in such fields as international monetary cooperation, reconstruction and development, as well as international trade in good and services.

Institutions which were established through those efforts included International Bank for Reconstruction and Development (the World Bank) and International Monetary Fund that were established in 1994.

The third body was International Trade Center, which was never established and was replaced by General Agreement on Tariff and Trade (GATT). The agreement was signed by 23 countries in 1947 and turned into multilateral global trade arrangements.

With the end of war, it soon transpired that devastation in Europe and Japan is much more than was conceived before while economic power of the United States also exceeded previous estimates. In late 1950s, the United States accounted for 27 percent of global production and 14 percent of the world’s total exports. The country also enjoyed 54 percent of total international reserves.

US aid for reconstruction of Europe within frame of Marshal Plan caused production by industrial countries of Europe to reach pre-war level in early 1950s. due to adoption of uniform economic policies by advanced industrial countries, gradual reduction of tariffs, and establishment of constant foreign exchange system, global economy experienced its highest growth over a 25-year period (up to early 1970s). If in 1950s, the US was considered a dominate economy, Europe and Japan played the same role in early 1970s.

Growth rate of global trade between 1950 and 1973 stood at an annual average of 8 percent. In this way, during the said period, which is known as the second wave of globalization, trade was still "growth engine" as it was during the first wave and trade growth was almost double the growth in global production. If in the first wave of globalization, reduction in transportation costs increased trade; in the second wave, reduction in tariffs and non-tariff barriers had a similar effect in goading growth of the world trade.

In 1973, when industrial countries played a major role in global economy, they accounted for 59 percent of the world’s gross domestic product and 64 percent of exports. In 1970s, in parallel to gradual economic problems which faced European countries (especially between 1972 and 1973) new economic powers apart from western industrial countries came to the surface. The most prominent economic feature of those countries was role of exports as the main engine for economic growth and development of the said countries.

The four countries were known as four tigers of Asia and included South Korea, Taiwan, Hong Kong, and Singapore. Out of those countries, South Korea experienced the most dynamic economic growth. South Korea’s exports grew by more than 40 percent in 1960s and their actual per capita income in the said decade rose at an average of 7-9 percent. South Korea ranked the 15th big exporter in the world in 1982 and is now the world’s 11th exporting country. Of course, high growth rates of Southeast Asian nations did not bring about major changes in the economic structure of the world because those rates were experienced in countries that were generally considered poor and did not have much clout in global economic scene. Therefore, global economy was still divided into two major groups: industrial and poor, developing countries.

The 1970s witnessed major developments in global economy, especially in industrial states. Increased oil prices over two periods and persistence of inflationary pressures in the European countries as well as increased competitive power of Southeast Asian nations were major markers of that decade.

Although negative effects of economic developments was gradually waning in early 1980s, crisis resulting from foreign liabilities in developing countries led to serious economic conditions in many poor countries of Asia, Africa, and Latin America; so that, 1980 in those countries is known as the "lost decade".

At the beginning of the last decade of the 20th century disintegration of the former Soviet Union was the most striking development in the field of political economy of the world, which led to emergence of new economies.

In most years of 1990s, transitional economic gradually took final steps to adapt themselves to necessities of global economy and integrate into international economic system. Another major development of that decade was emergence of China and India as major economic powers, which focused on development of industrial exports as axis of their economic development by taking advantage of economic development models of Southeast Asian nations. The 1990s, which was prelude to economic developments in the 21st century is known as the beginning of the third wave of globalization. Approach of most countries under an open economic system and in compliance with requirements of an open economic system, on the one hand, and profound technological developments in a decade of communications and information, on the other hand, ushered global economy into a period when economic power relies on software and is knowledge-based. Software developments in the recent decade had profound effects on global economy. According to studies carried out at Chicago University, based on constant price of 1998, cost of a 3-minue phone cal between New York and London was 93 dollars in 1931 while that cost has been reduced to one dollar in 2000 and that with a much better quality. In 2006, the figure was further reduced to a few cents.

Technical changes played a more effective role in opening global economy than reduction in tariffs and other trade barriers. At present, tariffs considered for commodities manufactured in industrial nations is less than 5 percent and is zero for members of the European Union. Today, Internet has changed into a means for the exchange of goods and services and is an unprecedented factor in global economy. You order goods on the one side of the globe and they are delivered within few hours on the other side. Such transaction would have taken several months is the past. Openness of global economy in late 20th century has greatly enhanced interdependence of countries and has greatly increased relative importance of international trade in global economy from 5.5 percent in 1950 to 17.2 percent in 2000. Relative share of goods and services in global trade has also changed. In 1980, share of agricultural services and industrial goods in total trade of goods and services stood at 15 percent, 12 percent and 45 percent, respectively, while corresponding figures for 2004 stood at 7 percent for agriculture, 20 percent for service sector, and 59 percent for industrial products. In addition to trade, per capita revenues of countries, including developed and developing ones has greatly increased.

For example, per capita revenues in the United States increased from 13,000 dollar in 1950 to 22,200 dollars in 1975 and 41,900 dollars in 2005.

These developments have changed power structure of the world economy. If in 1950, the United States was unrivaled economic power of the world, Europe and Japan played the same role in 1970 while India and China have emerged as effective economic forces in the world.

On the whole, the second and third waves of globalization, which stretch from early 1950 up to now, have greatly changed global economy as well as many countries of the world. During that period (50 years), gross domestic product of the world has increased 10 times while per capita revenue has increased by an average of 3 percent. During 1990-95, average growth of production in developing countries stood at 5 percent (higher than global average of 2 percent). In 1997, growth rate of those countries’ exports reached 7 percent (two times the global export growth rate of 3.5 percent). In addition, total capital flowing to developing countries has increased from 28 billion dollars in 1970 to about 306 billion dollars in 1997. Of course, globalization has been ensued with positive outcomes; there have been negative effects too.

One-eighth of people in industrialized nations are poor and about one-third of people in developing countries (about 1.5 billion) are living in poverty. Some 480 million people are suffering from malnutrition and more than 260 million school-age children are not attending classrooms. More than 850 million adults are still unable to write and read.

In 1997, out of total world population, the two upper deciles in rich countries accounted for 86 percent of global revenues while the two lower deciles in poor countries, accounted only for one percent of global revenues.

There is no doubt that global economy is now much more integrated and interdependence of countries has greatly increased. Globalization of economy, which is the main index of modern international economy, has turned into a rapidly progressive process with two different functions. Experience shows that this process offers countries with many opportunities and it is suitable policies adopted by countries that allow for those opportunities to boost people’s welfare (as shown in China and India). On the opposite, wrong policies as well as weak and inefficient management have caused many countries to reel around in a perennial vicious circle of poverty.