helps savings flow to high - value investments. spreading risk makes risk easier to bear, and more - efficient investment increases real incomes in the long run. of course, as always in finance, mistakes can be made. sometimes projects are financed that turn out to be fraudulent or otherwise unworthy, and sometimes national financial systems are not ready to deal with the higher volumes of capital flows and the quicker and harsher market discipline that comes with globalization. in the past couple of decades, we have no comprehensive data on this phenomenon. here are two indicators : ( 1 ) the share of u. s. merchandise exports destined for further processing by a foreign affiliate of a u. s. multinational corporation rose from 14 percent in 1982 to 19 percent in 1999, the latest available year of data ( bureau of economic analysis ) and ( 2 ) the share of u. s. merchandise exports to mexican maquiladoras rose from 3 percent in 1992 to 8 percent in 2004 ( mexican national institute of statistics and u. s. department of commerce, bureau of economic analysis ). see carol corrado, paul lengermann, and lawrence slifman ( 2003 ), " the contribution of multinational corporations to u. s. productivity growth, " paper presented at the oecd workshop on the impact of multinational enterprises on productivity growth, paris, november 5. see robert z. lawrence ( 1996 ), single world, divided nations? international trade and oecd labor markets ( washington : brookings institution ), and per krusell, lee e. ohanian, jose - victor rios - rull, and giovanni l. violante ( 2000 ), " capital - skill complementarity and inequality : a macroeconomic analysis, " econometrica, vol. 68 ( september ), pp. 1029 - 53. see edward e. leamer and peter k. schott ( 2005 ), " the rich ( and poor ) keep getting richer, " harvard business review, vol. 83 ( april ), p. 20. some major recessions in emerging - market nations appear to have been associated with boom - and - bust cycles in capital flows. but barriers to capital flows are not a realistic choice for emerging - market nations in the long run because these nations are unlikely to join the ranks of advanced economies without open capital markets. globalization also presents challenges for corporate treasurers and for other corporate decisionmakers. the importance of managing risk related to foreign exchange rate fluctuations usually grows with the

size of a firm's foreign sales and production. and operational risks have also become more important at many firms. examples include political risks - such as disruptions to operations or sales associated with political upheaval in a given nation or with changes in law - and reputational risks flowing from the challenges of conforming to a broader array of legal and cultural norms. i would encourage you to consider the degree to which each of your institutions has accurately measured and effectively managed these and other risks associated with global operations. implications for public policy policymakers should and do pay attention to globalization. to some extent, they have helped to promote it by removing or lowering barriers to cross - border investment, migration, and trade. i hope policymakers continue to take steps to facilitate globalization. but progress probably will also depend on other factors, like further advances in information, communication, and transportation technology, as well as changes in the habits of individuals and firms, all of which are largely out of the hands of policymakers. besides broad efforts to facilitate it, how should public policy respond to globalization? as i noted earlier, some are concerned that financial globalization leads to boom - and - bust patterns in capital flows and investment, especially in emerging - market nations. a return to capital controls is probably not the best choice here. more likely to be helpful is attention to the institutional environment, which encompasses the supervision of financial institutions, policy transparency, legal systems, control of corruption, incentives for good corporate governance, and macroeconomic stability. a recent international monetary fund study argues that countries that have benefited the most from globalization have been those with the strongest institutions. 25 we are currently experiencing a net outflow of capital from the developing world toward the industrial countries, a movement contrary to the prediction of simple economic theory. one important factor in this movement is that, on average, the institutional framework in industrial countries is perceived as being more favorable to investors in terms of allocating capital efficiently and protecting investors from fraud, waste, and expropriation. there is every reason to believe that capital flows will resume to those emerging markets that demonstrate a commitment to sustained improvements in their domestic institutions. the dislocation that can be caused by changing trade patterns poses another challenge to policymakers. this dislocation is not different in any meaningful way from the dislocation caused by technological progress. just as our economy would be a lot poorer if we had protected horses and buggies by outlawing automobiles, so it will be poorer if we