Globalization: Definition, History, and How World Trade Works

What globalization means, for the IMF

The International Monetary Fund defines economic globalization as a historical process, the result of human innovation and technological progress: the growing integration of the world’s economies, mainly through the movement of goods, services and capital across national borders. The term, per the IMF, sometimes also covers the movement of labor and knowledge between countries, and reaches beyond economics alone into broader dimensions: political and cultural ones, as well as environmental. The IMF places the word’s most common use in the 1980s, when technological advances made international transactions faster and easier.

A central part of this integration is the expansion of world trade through lower customs barriers, such as import tariffs. The IMF notes that trade gives an economy more resilience and flexibility: higher imports help offset negative shocks on the domestic supply side, while citizens of countries that open up to trade gain access to a wider range of goods and services, lower prices and more widespread jobs.

The phenomenon isn’t new: before it became an economic term, it already had a doctrinal predecessor pulling in the opposite direction.

Mercantilism, dominant in Europe from the 1500s to the 1700s, aimed to sell more abroad than a country bought, to build up gold and silver reserves — not to integrate economies with one another.

Two waves, not a straight line

Anyone picturing globalization as a recent invention runs into the long-run data gathered by Our World in Data. Before 1800, international trade stayed a marginal phenomenon: a global index never rose above 10% in that period. Exports were worth less than 10% of world output in the early 1800s, against a share that in Our World in Data’s most recent figures tops 20%.

Example: between 1830 and 1900, according to Our World in Data, intra-European trade rose from 1% to 10% of GDP. The jump was driven by railways and steamships, not computers or the internet: the first big leap in globalization is a 19th-century story.

That growth wasn’t continuous. Our World in Data describes two distinct waves. The first begins in the 19th century and breaks off with the start of World War I, when declining liberalism and rising nationalism caused international trade to collapse. The second wave restarts after World War II and continues today: per Our World in Data, the average volume of imports and exports in 2024 was, adjusted for inflation, more than two thousand times larger than in 1800. This second wave also sees a rise in intra-industry trade — the exchange between countries of broadly similar goods and services — a feature the first wave didn’t share.

Trade’s geography shifted along with its volume. Our World in Data notes that by 2014, trade between non-rich countries had become just as important as trade between rich countries, complicating the idea of a world split cleanly between an industrialized core and a poor periphery — an issue closely tied to inequality between countries and to the ranking of the poorest countries in the world. In 2024, Our World in Data adds, China was the top source of imports for roughly four countries out of ten worldwide, and in more than half of those cases the value of Chinese imports was at least twice that of US imports: a sign of how trade flows have shifted away from the postwar order led by the United States and Europe.

From the GATT to the WTO: the rules of world trade

The second wave of globalization also built an institutional framework. In 1947, a group of 23 countries signed the General Agreement on Tariffs and Trade (GATT), which, per the World Trade Organization (WTO), provided the rules for most of world trade from 1948 to 1994. A parallel attempt, the International Trade Organization agreed in Havana in March 1948, never took effect: ratification failed in several national parliaments.

The GATT moved forward through successive negotiating rounds: Geneva (1947), Annecy (1949), Torquay (1951), Geneva again (1956), the Dillon Round (1960-1961), the Kennedy Round (1964-1967), the Tokyo Round (1973-1979) and finally the Uruguay Round (1986-1994), the last and largest, with 123 participating countries per the WTO. It was the Uruguay Round that led to the creation of the WTO on 1 January 1995 — a date the WTO itself calls the biggest reform of international trade since the end of World War II.

	GATT	WTO
Period	1948-1994	Since 1 January 1995
Origin	Agreement among 23 signatory countries in 1947	Born from the Uruguay Round (1986-1994, 123 countries)
Role	Rules for most of world trade	The most extensive trade reform since the postwar era

World trade in 2025, by the numbers

The WTO’s latest data show world trade growing at a strong pace. In 2025, the value of trade in goods and services, on a balance-of-payments basis, rose 8% from the previous year, reaching $34.89 trillion; in 2024, growth had been 4%. Alongside these figures sits a different historical series, the weight of trade on world GDP: per the IMF, the value of trade in goods and services rose from 42.1% to 62.1% of global GDP between 1980 and 2007. Over the same span, foreign direct investment grew from 6.5% to 31.8% of world GDP between 1980 and 2006, and the stock of international claims — mainly bank loans — rose from roughly 10% to 48% of world GDP, also between 1980 and 2006.

Indicator	1980	Latest available year
Trade (goods and services) / world GDP	42.1%	62.1% (2007)
Foreign direct investment / world GDP	6.5%	31.8% (2006)
International claims / world GDP	~10%	48% (2006)

That same web of international bank lending, built up through 2006, became the channel through which the 2008 financial crisis spread from one market to another within months.

Cross-border communication grew in a similar way: per-capita minutes spent on international phone calls rose from 7.3 in 1991 to 28.8 in 2006, according to the IMF, while the number of foreign workers worldwide climbed from 78 million (2.4% of the world’s population) in 1965 to 191 million (3.0%) in 2005.

Economic globalization

The economic dimension is the best documented in the sources: it concerns the scale of the whole world economy, the level that macroeconomics studies, unlike microeconomics, which looks at individual firms or households. It covers trade in goods and services, capital flows and foreign direct investment, plus the movement of labor and knowledge between countries — the same elements the IMF lists in its definition, and the ones the 1980-2007 data series show growing steadily through the second wave of globalization.

Political globalization

The Stanford Encyclopedia of Philosophy describes a political dimension of globalization made up of two distinct strands. On one side, supranational forms of regulation and rulemaking, in which individual states choose to cooperate on shared rules: the European Union is the most institutionalized example of this kind of cooperation among states. On the other, transnational movements in which activists use fast communication technology to coordinate across borders. The same source also flags an open philosophical debate: democratic politics presupposes feelings of trust and belonging that remain uncommon at the supranational or global level, an argument used by those skeptical of world government. On the economic side, the Stanford Encyclopedia of Philosophy links the growing material inequality produced by economic globalization to rising domestic inequality even within wealthy democracies.

Cultural globalization

On the cultural dimension, the sources consulted offer less material than on the economic or political ones. The IMF names it explicitly, alongside the environmental dimension, as one of the “broader” dimensions of globalization that go beyond economics in the strict sense, without detailing which cultural practices or consumption patterns it involves. It’s fair to say, then, that globalization has a cultural side too, acknowledged by economic institutions themselves, more than to describe how it specifically works here.