Financial Globalization and the U.S. Current Account Deficit

Financial Globalization and the U.S. Current Account Deficit

Matthew Higgins and Thomas Klitgaard


Absract:

Despite heavy borrowing in recent years, the United States has financed its large current accountdeficits without experiencing an unusual buildup in foreign investors’ holdings of U.S. assets. A newanalysis suggests that this somewhat surprising development is attributable largely to rapid financialglobalization, 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 currentwave of globalization subsided or the rate at which U.S. investors buy foreign assets increased.