The following is the full text of US Federal Reserve chairman Alan Greenspan’s speech on the current account delivered before the Advancing Enterprise 2005 Conference in London:

International trade has been expanding as a share of world gross domestic product since the end of World War II. Yet through 1995, the expansion was essentially a balanced grossing up of cross-border flows.

Only in the past decade has expanding trade been associated with the emergence of ever-larger US current account deficits, lesser deficits elsewhere, matched by a corresponding widening of external surpluses in a majority of trading nations. The increased dispersion of these external imbalances is mirrored in a decline in the tight association between national saving rates and domestic investment rates. The correlation between the two, for countries representing four-fifths of world GDP, declined from a coefficient of around 0.96 in 1992, where it had hovered for a half-century, to an estimated low of 0.8 last year.

A number of factors have recently converged to lessen restraints on cross-border financial flows as well as on trade in goods and services. The advance of information and communication technology has effectively shrunk the time and distance that separate markets around the world. The vast improvements in these newer technologies have broadened investors’ vision to the point that foreign investment appears less exotic and risky. Combined with improvements in transportation networks, these developments have expanded the range of tradable goods and services that can be brought to each market and have enabled greater integration of the productive resources of national economies. Both

deregulation and technological innovation have driven the globalisation process by tearing down the barriers that have separated economic agents, thus lowering costs.

The effect of these developments has been to markedly increase the willingness and ability of financial market participants to reach beyond national borders to invest in foreign countries, just as a century and more ago savings moved beyond local investment opportunities to develop national markets. Implicit in the movement of savings across national borders to fund investment has been the significant increase in the dispersion of national current account balances. In recent years, the negative tail of the distribution of current account balances has been, of course, dominated by the US deficit.

Explore Economics

• Pre-Budget Report 2009

• Budget 2009

• World Economic Forum

• The Times MPC

Times Recommends

• Lies and cover-up at MG Rover exposed by report
• High oil prices push manufacturing costs up
• Primark founder steps down as chief executive