Growing World Trade: Causes and Consequences

WHAT ASPECT OF the American economy has changed most in the twenty-five years since Brookings Papers on Economic Activity first began appearing? If you took a poll of economic journalists, businessmen, or policy intellectuals other than professional economists, globalization-the growing integration of the United States with the world economy-would probably top the list. It is now conventional wisdom in many circles that the growth of world trade and investment has transformed the ground rules for economic policy. Admittedly, many international economists regard the popular conviction that unprecedented globalization has changed everything as considerably exaggerated; Americans are still so taken with the novelty of extensive international trade that they have yet to acquire a sense of perspective about its importance. Even today the shares of imports and exports in America's GDP are only about half of what they were in the United Kingdom thirty years ago; the U.S. economy is not now, and may never be, as dependent on exports as Britain was during the reign of Queen Victoria. Nonetheless, international trade has certainly increased considerably since the 1960s. In 1960 the share of trade-measured as the average of imports and exports of goods and services-in America's GDP was 4.7 percent; in 1994 it was 11.4 percent, an increase of more than 100 percent. While the growth of trade has not been quite as dramatic in other advanced countries, it has also been considerable: the average OECD country had a trade share of 12.5 percent in 1960, 18.6 percent in 1990. And a number of developing countries have seen