Financial Globalization and the U.S. Current Account Deficit
7 Pages Posted: 3 Jan 2008
Date Written: December 2007
Despite heavy borrowing in recent years, the United States has financed its large current account deficits without experiencing an unusual buildup in foreign investors' holdings of U.S. assets. A new analysis suggests that this somewhat surprising development is attributable largely to rapid financial globalization, with cross-border flows worldwide rising as fast as flows into the United States. However, it could be harder for the country to sustain large deficits on favorable terms if the current wave of globalization subsided or the rate at which U.S. investors buy foreign assets increased.
Keywords: financial globalization, cross-border financial flows, current account adjustment, balance of payments, external assets, international asset position
JEL Classification: F32, F36
Suggested Citation: Suggested Citation