free trade is accounted for. but the case for free trade can also be challenged due to the presence of externalities and information asymmetries which can negatively affect social welfare. for example, importers may find it difficult to find out under which conditions or standards the imported goods or services have been produced. externalities, including eventual social costs of free trade, are one reason why we also regulate technological progress, e. g. if new technologies have adverse side effects on public health, safety or the environment. overall, the economic case for free trade thus remains strong on efficiency grounds, like the case for using more productive technologies. but the political case for free trade depends on whether its distributional, social and environmental consequences can be adequately managed. a similar reasoning applies to the free flow of capital. 22 in principle, free capital flows allow for risk sharing and a better allocation of resources across economies. they also help economies to catch up in terms of technology and financial market development through the transfer of knowledge. but recent academic analysis and policy experience, both globally and at euro area level, have revealed that capital flows can pose risks. they can be volatile and pro - cyclical, fuelling economic and financial cycles, and eventually asset price bubbles. in this context, the composition of flows has important implications for the likelihood of sudden stops and reversals. 23finally, countries participating in financial globalisation should have reached a certain level of institutional development in order to avoid costly boom - and - bust cycles. 24 overall, these considerations lead me to conclude that the case for real and financial integration is still strong but should be qualified. at the same time, i believe that reducing real and financial integration via harsh protectionism is tantamount to destroying machines, as the luddites did during the industrial revolution. in fact, outright protectionist measures have adverse side effects that reduce economies ’ growth potential. over time, these side effects may reduce welfare by more than the problems they seek to address. and there are better ways of dealing with the side effects, as i will argue below. towards sustainable globalisation globalisation can be made more sustainable if we make it more efficient, enduring and equitable. to that end, let me expand on some ideas i have put forward on financial globalisation. more efficient globalisation should be on the agenda of even mainstream economists because it would mainly address common market failures, which are well known from the domestic context. for trade flows, it would imply reducing information

much more study of how to set the future of the bank of korea is thus also essential. dear fellow colleagues! upon my appointment as governor of the bank of korea last year, i mentioned three points related to internal management. i vowed to improve the management administration system and the methods of work that were limiting the efficiency in carrying out our duties, and to modify the organization of the bank of korea to enable it to more faithfully fulfil its innate function as a central bank. related to human resource allocation, i made clear that i will put an emphasis on the personal performance and reputation built up over a long period of time. these promises of mine are being put into action step - by - step. your views on tasks for management improvement were gathered and those recognized as necessary have been wholeheartedly accepted. our organization will be reshaped in the direction of improving our communication with the financial markets, expanding our study and research functions related to monetary policy, and carrying out our financial stability function more effectively. personnel management will be continuously dealt with in a fair manner, based upon the proposed standards. however, the management administration system, the organization and our personnel management are no more than just hardware for performing our work well. and no matter how good the hardware is, the whole system will be unable to carry out its function properly if its software is inadequate. and what we need to do now is to update the software that runs the system called the bank of korea, meaning our attitudes and the way in which we work. more than anything, i hope that you will all try to work in more flexible and active manners. in this rapidly changing economic environment, if we merely follow precedent and work passively there is a risk that we may miss something critical. i would like to ask our bok staff to always deliberate on the current issues in the overall korean economy and on the bank of korea ’ s role. if more bok staff deliberate deeply, with a sense of ownership, we can come up with better ideas that will lead us to develop more feasible and timely policy measures. it is also important to be enthusiastic about and devoted to our work. some of you may feel that your work is trivial, but your work exists because it is indispensable to the bank of korea. we need to bear in mind that if one part of a spacecraft breaks down, even just a small part, then that big spacecraft may explode in midair. if we realize deeply that our work does