example, in 2010, the US current account deficit was $471 billion (-3.2 percent of its GDP or less than 1 percent of world GDP), and China’s surplus was $305 billion (5.2 percent of its GDP).<sup>44</sup>

**Table 4:  Gross Capital Flows: Summary Statistics**

# (percent of Trend GDP)

|--------------------------------------------------------<br>High-Income<br>Countries<br>--------------------------------------------------------------------|------------<br>Middle-I<br>Countr<br>-------------|-------------------------------------------------<br>ncome Low-Income<br>ies Countries<br>----------------------------------------------|
|---|---|---|
|<br>Median Median<br>Average Std. Dev.<br>--------------------------------------------------------------------|<br>Median<br>Average<br>-------------|<br>Median Median Median<br>Std. Dev. Average Std. Dev.<br>-----------------------------------------------|
|<br>Total Gross Capital Flows 17.67 15.49|<br>9.31|<br>10.01 6.97 7.17|
|1970s 9.50 3.62|7.01|5.27 7.92 2.75|
|1980s 9.10 6.16|1.96|5.95 4.86 3.90|
|1990s 13.56 9.39|7.80|5.60 7.21 5.56|
|2000s 32.65 16.70<br>-------------------------------------------------------------------|15.06<br>-------------|8.48 8.41 6.21<br>-------------------------------------------|
|<br>No. of Countries 39<br>--------------------------------------------------------------------|<br>26<br>-------------|<br>38<br>--------------------------------------------|

Source: Broner, F, T. Didier, A. Erce and S. Schmukler, “Gross Capital Flows,” Policy Research Working Paper 5768, August 2011, Table 1. The table shows summary statistics of total gross capital flows by both foreign and domestic agents as well as net capital flows and total gross capital flows: sum of inflows by foreign agents and outflows of domestic agents. The median value of country averages and of country standard deviations of capital flows over trend GDP are shown. The sample period is from 1970 to 2009.

The global economic crisis began with the collapse of mortgage lending in the US in 2007, and spread internationally at a very fast pace. For the first time since the Great Depression, major international banking systems began to sharply deleverage their external positions in response to pressures on their funding and capital. As a result, it is estimated that the gross cross-border flows plummeted from nearly 20 percent of world GDP in 2007 to less than 1 percent of world GDP in the latter half of 2008.<sup>45</sup> As indicated earlier, the 2008 financial crisis was characterized by a sharp drop in gross capital flows around the world, even though net flows have remained relatively stable. As a consequence, gross capital flows seem more volatile than net capital flows. Table 4 shows that gross capital flows, measured as a percentage of trend output, have increased over time around the world, indicating rapid financial globalization, especially for high- and middle-income countries.46 This table also shows that over time the volatility of gross capital has increased significantly, with the median standard deviation for all income groups increasing during the 2000s compared to earlier periods. More specifically, the volatility of gross capital flows is significantly larger for high-income countries than for middle-income countries or for low-income countries in recent decades. In sum, _gross_ capital flows are not only increasingly larger, but also increasingly are more volatile. This is in contrast to what is observed with respect to _net_ capital flows, and the patterns suggest an increasing importance of gross capital flows, particularly starting in the 2000s.

> 44 OECD Economic Outlook, November 2011, table. 1.3.

> 45 See Speller, W., Thwaites, G. and M. Wright, “The Future of International Capital Flows,” Bank of England, Financial Stability Paper No. 12, December 2011.

> 46 Broner, F, T. Didier, A. Erce and S. Schmukler, “Gross Capital Flows,” Policy Research Working Paper 5768, August 2011, Table 1.

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