Trade Is an Increasing Share of the New Economy

WHY IS THIS IMPORTANT? The dramatic expansion of trade means more robust competition, which makes constant innovation more critical to success. For that reason, globalization has accelerated industrial and occupational restructuring, leading to the decline of some industries and jobs, and the growth of others. One indicator of the extent of the trend toward globalization is the growing value of exports and imports as a share of the economy.

THE TREND: Trade has become an integral part of the United States' and world economies. U.S. exports and imports have increased from 11 percent of GDP in 1970 to 25 percent in 1997. Moreover, the United States is increasingly specializing in more complex, higher value-added goods and services, as reflected in the fact that the average weight of a dollar's worth of American exports is less than half of what it was in 1970.

World exports increased from $1.3 trillion in 1970 to $4.3 trillion in 1995, in constant dollars. And globalization may be about to move up to a new level. Jane Fraser and Jeremy Oppenheim, of the consulting firm McKinsey & Company, have estimated that the value of the world economy that is "globally contestable," which is to say open to global competitors in product, service, or asset ownership markets, will rise from about $4 trillion in 1995 (approximately a seventh of the world's output) to more than $21 trillion by 2000 (about half of world output). According to Fraser and Oppenheim, "We are on the brink of a major long-term transformation of the world economy from a series of local industries locked in closed national economies to a system of integrated global markets contested by global players."¹¹ This growth will be driven by global capital markets, reduced economic and trade barriers, and perhaps most importantly, technological change, which makes it easier to locate enterprises and sell products and services almost anywhere. For example, online brokerages like E-Trade or Charles Schwab are just as accessible from Singapore or New Zealand as they are from the United States.

THE DATA:¹²

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Productivity Paradox | Knowledge Economy
Nine Myths | Data Sources | Endnotes | The Authors

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