The associated increased layers of intermediation in our financial system make it easier to diversify and manage risk, thereby facilitating an ever-rising ratio of domestic liabilities (and assets) to GDP, and gross external liabilities to trade.5 These trends seem unlikely to reverse, or even to slow materially, short of an improbable end to the expansion of financial intermediation that is being driven by cost-reducing technology.
Uptrends in the ratios of external liabilities or assets to trade, and therefore to GDP, can be shown to have been associated with a widening dispersion in countries’ ratios of trade and current account balances to GDP.6 A measure of that dispersion, the sum of the absolute values of the current account balances estimated from each country’s gross domestic saving less gross domestic investment (the current account’s algebraic equivalent), has been rising as a ratio to GDP at an average annual rate of about 2 percent since 1970 for the OECD countries, which constitute four-fifths of world GDP.