Trade is a vital and growing area of international interaction. Efforts to promote globalization are supported by many governments around the world and, equally, are opposed by other governments and by well-organized interest groups. Free trade and freedom of move¬ment, whether in currencies, capital investments, or labor are good for consumers, but freedom of movement can harm particular industries or those who own particular factors of production.

Currencies that float, especially when supported by a government that has an independent central bank, tend to assure the greatest mobility of money and the least government interference in market exchanges. Floating currencies and central banks are two valuable pillars of globalization. When governments control currency values or prohibit currency convertibility, there are sore temptations to manipulate the money supply for political ends rather than for good economic effects. Large-coalition, democratic governments almost always depend on independent central banks to shape their monetary policy and to ensure that their money can easily move to its best use.

Globalization differentially affects different sectors of the world’s population depending on what individual governments do to promote or inhibit freedom of movement for capital and labor. If both labor and capital are fairly mobile, then over the long run free trade is relatively beneficial for capital in capital-intensive economies (like many wealthy countries) and is beneficial for labor in labor-intensive economies (like many poor countries). I say over the long run because, given sufficient time, both labor and capital are likely to find ways to move if they want to. In the short run, mobility is more difficult because investments are tied up, workers have family commitments, the government might restrict mobility, and so forth. In the long run, free trade is also relatively disadvantageous for the owners of capital in poor countries and for labor in rich countries. In short, free trade has the long-term pros¬pect of being a great equalizer of income across countries and across owners of labor and owners of capital.

The evidence from our data set of countries over the past fifty years shows us the effects of different trade policies. Countries that restrict trade so that it is a small part of their eco¬nomic picture tend to provide relatively little value-added to labor and to attract relatively small amounts of investment. Countries that have been open to trade tend to have relatively equal income distributions, to provide a relatively large value-added to labor, and to attract relatively large amounts of investment. Apparently, governments that interfere least in foreign trade and freedom of movement produce the best outcomes, on average, for most of their citizens, rich and poor.