$ 380 billion. in the aggregate, the shift from deficit to surplus in the current account of the emergingmarket world over this period largely reflected increased saving as a share of output rather than a decline in the rate of capital investment. however, changes in saving and investment patterns varied by countries and regions. for example, in the countries of developing asia excluding china, most of the $ 150 billion swing toward external surplus between 1996 and 2004 was attributable to declines in domestic investment. in china, rates of both saving and investment rose, but saving rates rose more, leading to an increase in that country's current account surplus of about $ 60 billion. outside of developing asia, oil exporters in the middle east and the former soviet union were also important contributors to the large increase in emerging - market current account balances. the combined current accounts of the two regions increased from a surplus of $ 20 billion in 1996 to a surplus of $ 162 billion in 2004, an increase of about $ 140 billion. this rise largely reflected higher saving rates, as domestic consumption fell behind the surge in oil revenues. among other emerging - market economies, higher saving also accounted for an increase in the aggregate current account balance of latin america. of course, as emergingmarket countries switched from being net borrowers to being net lenders, they began to pay down their international debts and to acquire assets of industrial countries. statistical discrepancies, both within the national income and product accounts ( nipa ) and between the balance of payments definitions and nipa definitions of certain international transactions. i am using the terms " emerging - market " and " developing " interchangeably. as shown in the table, the surplus of industrial countries other than the united states increased from about $ 150 billion to nearly $ 350 billion over the period, and the japanese external balance rose from $ 66 billion to $ 172 billion. the increase in the japanese current account balance as a share of gdp, from 1. 4 percent to 3. 7 percent, occurred despite a substantial fall in the gdp share of the saving rate, from 30. 4 percent to 26. 8 percent, as the gdp share of the investment rate fell even more dramatically, from 28. 9 percent to 23. 0 percent. for the euro area as a whole, the current account balance remained at about 1 percent of gdp between 1996 and 2004, as aggregate investment and saving ratios remained largely unchanged. within the euro area, germany's current account balance increased almost 5 percentage

points of gdp – from - 0. 6 percent in 1996 to 4. 3 percent in 2004 – as saving moved up and investment decreased. however, this development was offset by declines in the balances of some other euro - area countries, including france, italy, and spain ; the decreases were mostly associated with higher investment rates. data on saving, investment, and current account balances for countries other than the united states are drawn primarily from the international monetary fund, world economic outlook database, april ( www. imf. org / external / pubs / ft / weo / 2007 / 01 / data / index. aspx ) ; in some cases, data are drawn from national sources. i have noted the expansion of the u. s. current account deficit and the associated increases in current account surpluses abroad over the 1996 - 2004 period. a third key development in that period was a sustained decline in long - term real interest rates in many parts of the world. for example, the real yield on ten - year inflation - indexed u. s. treasury securities averaged about 4 percent in 1999 but less than 2 percent in 2004. the difference between the nominal long - term treasury yield and the trailing twelve - month rate of consumer price inflation, another measure of the u. s. real interest rate, showed a similar pattern, falling from about 3. 5 percent in 1996 to about 1. 5 percent in 2004. similar movements were observed in other industrial countries : in the united kingdom, the real yields on inflation - indexed government bonds fell from an average of 3. 6 percent in 1996 to just below 2 percent in 2004 ; in canada, the analogous figures were 4. 6 percent in 1996 and 2. 3 percent in 2004. real interest rates measured as the difference between government bond yields and consumer inflation also fell in germany, sweden, and switzerland. however, in japan, real interest rates remained low throughout the period. in sum, considering the 1996 - 2004 period, we have three facts to explain : ( 1 ) the substantial increase in the u. s. current account deficit, ( 2 ) the swing from moderate deficits to large surpluses in emerging - market countries, and ( 3 ) the significant decline in long - term real interest rates. many observers have focused on the expansion of the u. s. current account deficit in isolation and have argued that it is due largely to domestic factors, particularly declines in both public and private saving rates. but accounting identities assure us that