by Dallas Fed
The U.S. has embraced rapid globalization since the 1970s, with the trade share of gross domestic product (GDP) increasing from less than 6 percent in 1970 to over 15 percent in 2013. Financial integration is even more phenomenal: The GDP share of foreign assets invested in the U.S. increased more than tenfold from around 10 percent in 1970 to over 150 percent in 2013. U.S. financial assets invested abroad grew at a similar pace over the period.
The rapid real and financial globalization in the past 30 years poses many challenges to policymakers in the U.S. and around the globe. When making decisions at home, they can no longer ignore changes abroad. Policymakers must better understand the interaction among domestic and foreign economies as they seek to maximize their nation’s welfare.