Globalization refers to the growing integration since World War II of the national economies of most of the advanced-industrialized countries of the world, and an increasing number of developing nations, to the degree that we may be witnessing the emergence and operation of a single worldwide economy. It raises directly the question of whether and to what extent individuals and countries are living in a new political-economic environment, and if so, what has brought about that new environment into being. Krugman points out that if there has been a new phase in higher in world trade integration, it has basically only been since the 1970s. This general trend, of growth of world economic integration up to 1914, then collapse in the face of World War I, the Great Depression, and World War II, and then recovery and possibly a trend toward a new level of economic integration, can be observed very clearly in the American experience. If by consequence we compare merchandise trade to overall merchandise production, we find that trade has become a more prominent for a number of major countries, including the United States, even when compared to the pre-World War I period.
Capital can move across borders through a variety of general vehicles.
Economists often employ as a measure of the importance of international capital flows for a country the ratio of the absolute value of its current account balance to its gross domestic product. The rationale for this measure is that if a country experiences a current account surplus, this is accommodated by the acquisition by the country s nationals of foreign financial assets and therefore the outflow of capital, and if the country experiences a current account deficit, this is accommodated through the sale by the country s nationals of financial assets to foreigners and therefore the inflow of foreign capital. Hence, the absolute value of a country's current account balance provides some insight into its participation in international capital markets either as a source or a recipient of such capital. I levels of international capital markets integration. Finally, it is certainly the case that cross-border capital flows are leading to a tightening of the linkages between the American economy with that of the rest of the world.