‘ good luck ’ story may have reflected the benign effects of globalisation. this realisation has dawned as it has become clear that globalisation is having pervasive effects on our economies, as well as contributing to some trends which are not so immediately favourable. globalisation, in the present context, is shorthand for the increasing integration of international markets for goods and services, capital and labour. as we all know from first hand experience, the world economy is being transformed by the lowering of all sorts of barriers to the free movement of people, money, knowledge, goods and services. these trends are, of course, as old as human history. but there have been periods, like the second half of the nineteenth century, when globalisation has proceeded rapidly and periods, like the first half of the twentieth century, when it has gone into retreat. the past fifteen years or so have been a period of major advance as a result of far - reaching political and regulatory changes as well as revolutions in technology and communications. the pace of change has been striking in several key areas. first, international capital flows have grown explosively, as financial markets have become more integrated. as a result, the value of the global stock of assets in cross - border ownership tripled over the ten years to 2004. as well as increasing the scope for mobilising savings and allocating capital across different markets, the development of deep and liquid international financial markets has opened up new possibilities for diversifying risks and smoothing the adjustment to unforeseen events. this should promote both economic stability as well as growth. second, the sheer scale and pace of economic development in china is without precedent. what is not new is its strong export orientation – this was the route taken by japan and the east asian tiger economies. china is now a key part of both global and regional supply chains for the production of low - cost manufactured goods. china now produces 80 % of the world ’ s photocopiers, 50 % of the world ’ s textiles and 50 % of the world ’ s computers. these developments will tap the labour of hundreds of millions of people who were previously effectively outside the global market place. they are also triggering urbanisation – and infrastructure investment – on a scale, and at a rate, which makes our own industrial revolution look sedate, even puny. the chinese government expects 300 million people to migrate from the countryside to urban areas over the next 20 years. china had no motorways in 1988, now

and the greater availability of migrant labour to ease domestic labour shortages. a welsh audience will need no reminding of the many ways in which both inward and outward foreign direct investment can affect domestic employment opportunities. hard as it is to quantify, the net effect of these trends may have been to reduce the sensitivity of domestic inflation to changes in the margin of spare capacity in the economy. but while these effects go some way towards explaining why the global inflationary climate may have been relatively benign over much of the past decade, i think they fall short of providing a complete explanation for the strength and resilience of global output growth. for this we might look to the more elusive influence of financial integration, and the added impetus to global growth provided by the increasing weight of fast - emerging market economies, particularly in asia. it is just worth pausing on the remarkable ease with which the world economy has apparently absorbed the impact of sharply higher oil prices. world output expanded at its fastest rate for 30 years in 2004, and this year growth looks like being as strong again. one obvious explanation is that both high oil prices and the strength in the world economy have reflected the rapid pace of development in data from oecd ’ s international migration outlook 2006. china, where growth has been around 10 % a year since 2004, and which last year was responsible for nearly half of the growth in total world oil demand. so the two have helped to offset each other. but the recent behaviour of oil prices has also reflected supply - side problems. the rapid growth in demand seems to have taken oil producers by surprise. the world is currently operating on a very thin margin of spare oil production capacity as a result of low investment in the 1990s. the result is that oil prices have also been volatile, as well as high, moving sharply in response to geopolitical and weather - related news, as well as changing expectations about world demand and supply. in time, both supply and demand will respond to higher prices, but the lead times for new production capacity are very long – around ten years to develop a new field. high and volatile oil prices pose a grisly challenge for monetary policy makers. but so far there has been no surge in inflation across the world as there was following the oil price increases in the 1970s. true, headline inflation rose initially in many countries, especially the us, where it ticked up to nearly 5 %, before falling sharply to less than 1. 5 % when oil prices fell this autumn. but central