Abstract

WHAT ASPECT OF the American economy has changed most in the twenty-five years since Brookings Papers on Economic Activity first be-gan appearing? If you took a poll of economic journalists, businessmen, or policy intellectuals other than professional economists, globaliza-tion-the growing integration of the United States with the world econ-omy-would probably top the list. It is now conventional wisdom in many circles that the growth of world trade and investment has trans-formed the ground rules for economic policy. Admittedly, many international economists regard the popular con-viction that unprecedented globalization has changed everything as con-siderably exaggerated; Americans are still so taken with the novelty of extensive international trade that they have yet to acquire a sense of per-spective about its importance. Even today the shares of imports and ex-ports 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 in-creased considerably since the 1960s. In 1960 the share of trade-mea-sured 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 I would like to thank T.N. Srinivasan, Richard Cooper, and William Nordhaus for helpful comments.