Trading Places
The swift growth in world trade, rising at a rate of seven percent annually during the 1990s, has truly connected the markets for industrial, consumer, and financial goods and services. Direct investments climbed at an impressive 11 percent per year; today, around 690,000 foreign affiliates, with sales of $14 trillion, span the globe to service existing clients and to create new opportunities.
Technology further linked investors by giving them access to markets all across the world and provided the securities industry with the capacity to finance projects, provide investment advice, and manage risk anywhere.
Although the United States’ economy and capital markets are the world’s largest, both have declined in relative size. U.S. GDP now represents only one fifth of the world economy, while the value of U.S. stocks has shrunk to less than half the global total. Moreover, fully 96 percent of the world’s population is located outside the United States; India and China alone have 2.3 billion citizens.
New technologies, combined with increased access to foreign markets, have permitted U.S. investors and businesses to enter these markets in greater numbers.
American exports and imports of goods and services rose to nearly $2.2 trillion in 1999 (nearly one fourth of GDP). Increasing inflows and outflows of foreign direct investment have tied the United States more closely to the world economy. Record U.S. FDI outflows in 1999 of $138.5 billion continue to reflect a growing emphasis by American companies on locating facilities overseas to reduce costs while satisfying growing demand abroad for U.S. products.
Worldwide, companies formed new alliances to become more competitive in the global marketplace. Cross-border M&A activity totaled $720 billion in 1999, and the pace of large cross-border deals will undoubtedly accelerate as globalization intensifies. Crossborder M&A transactions totaled 6,000 in 1999, with 109 deals worth $1 billion or more.