in goods, services, and assets. of course, national borders do matter and continue to have some economic significance, an issue to which i shall return. the process of growing trade and financing imbalances has been developing within the borders of the united states for some time. the dispersion of unconsolidated current account balances of individual economic entities relative to nominal gdp may be expected to exhibit similar trends to the dispersion of saving - investment imbalances among the seven consolidated nonfinancial sectors measured in u. s. macroeconomic statistics : households, corporations, nonfarm noncorporate business, farms, state and local governments, the federal government, and the rest of the world. 4 this measure exhibits a rise over the past half - century in the absolute sum of surpluses and deficits that is 1 - 1 / 4 percentage points per year faster than the rise of nominal gdp. 5 the increase in the dispersion of the balances of unconsolidated economic entities was presumably even greater. 6 indeed, in a more detailed calculation employing more than five thousand nonfinancial u. s. corporations, the absolute value of surpluses and deficits as a ratio to a proxy for corporate value added exhibits an average annual increase of 3 - 1 / 2 percent per year. 7 the apparent increase in the dispersion of the imbalances of the economic entities within our national borders appears to have flattened out over the past decade, according to calculations using the balances of the six domestic sectors. the continued expansion of the dispersion of the balances, relative to gdp, of individual households, nonfinancial businesses, and governments during the past decade is arguably related to the shift in trade and financing from within the borders of the united states to cross - border trade and finance. in simple terms, some u. s. domestic businesses previously purchasing components from domestic suppliers switched to foreign suppliers. these companies generally view domestic and foreign suppliers as competitive in the same way that they view domestic suppliers as competing with each other. moving from a domestic to a foreign source altered international balance bookkeeping but arguably not economic stress. 8 such transactions may, of course, take into account exchange rates in the adjustment process, similar to the manner in which prices of purchased components presumably are taken into account when one domestic supplier is substituted for another. i include the " rest of the world " sector because it measures surpluses or deficits of

u. s. productivity growth and the decline in what economists call home bias. in brief, home bias is the parochial tendency of persons, though faced with comparable or superior foreign opportunities, to invest domestic savings in the home country. the decline in home bias is reflected in savers increasingly reaching across national borders to invest in foreign assets. the rise in u. s. productivity growth attracted much of those savings toward investments in the united states. the greater rates of productivity growth in the united states, compared with still - subdued rates abroad, have apparently engendered corresponding differences in risk - adjusted expected rates of return and hence in the demand for u. s. - based assets. home bias implies that lower risk compensation is required for geographically proximate investment opportunities ; when investors are familiar with the environment, they perceive less risk than they do for objectively comparable investment opportunities in far distant, less familiar environments. home bias was very much in evidence for a half century following world war ii. domestic saving was directed predominantly toward domestic investment. because the difference between a nation's domestic saving and domestic investment is the near - algebraic equivalent of that nation's current account balance, external imbalances were small. 1 national income accounting establishes that the gap between domestic saving and domestic investment is equivalent to net foreign saving ; net foreign saving is a close approximation of the current account balance. however, starting in the 1990s, home bias began to decline discernibly, the consequence of a dismantling of restrictions on capital flows and the advance of information and communication technologies that has effectively shrunk the time and distance that separate markets around the world. the vast improvements in these technologies have broadened investors'vision to the point that foreign investment appears less risky than it did in earlier times. accordingly, the weighted correlation between national saving rates and domestic investment rates for countries representing four - fifths of world gross domestic product ( gdp ) declined from a coefficient of around 0. 97 in 1992, where it had hovered since 1970, to an estimated low of 0. 68 last year. 2 to be sure, international trade has been expanding as a share of world gdp since the end of world war ii. yet, through the mid - 1990s, the expansion was largely a grossing up of individual countries'exports and imports. only in the past decade has expanding trade been associated with the emergence of ever - larger u. s. trade and current account deficits, matched by a corresponding widening of the aggregate external surplus