428 International Organization The first step in evaluating the effects of contemporary levels of international capital mobility is to get a clear picture of where the levels stand in relation to the past.Long-term capital movements across borders were relatively limited for the first twenty-five years after World War II and took place primarily in the form of direct investment.Today,long-term international investment flows are extraordinarily large,and direct investment has been dwarfed by other,more arms-length,forms of cross-border capital movements. According to one source,net international bond and bank lending was $440 billion in 1989,up from $180 billion just five years earlier.Capital outflows from the thirteen leading industrialized countries averaged $444 billion in 1989,with almost two-thirds of the amount consisting of portfolio investment,in contrast to $52 billion in the late 1970s,with two-thirds consisting of foreign direct investment.Capital outflows were equivalent to 15 percent of world merchan- dise trade in 1989,in contrast to 7 percent in the late 1970s.3 According to another source,the outstanding stock of international bank and bond lending was $3.6 trillion in 1989,equivalent to 25 percent of the aggregate gross national product(GNP)of the industrialized countries,in contrast to under $200 billion and 5 percent of aggregate GNP in 1973. Recent changes in regulations and technology have made it possible for money to travel across borders almost instantly,giving rise to massive short-term international financial transactions.In April 1989,foreign exchange trading in the world's financial centers averaged about $650 billion a day, equivalent to nearly $500 million a minute and to forty times the amount of world trade a day.Markets for short-term international financial instruments are comparably large,although exact figures are not available.? Impressive as these numbers are,they do not amount to full international capital mobility.In fact,economic studies have consistently shown that borders and currencies are still substantial barriers to investment flows.3 Although Missiles."Wriston is cited in my Banking on the World:The Politics of American Interational Finance (New York:Harper Row,1987),p.115.See also Walter Wriston,Risk and Other Four-Letter Words (New York:Harper Row,1986). 5.Bank for International Settlements (BIS),Sixtieth Annual Report (BIS:Basle,1990),pp.63, 82,and125. 6.See Morris Goldstein,Donald Mathieson,and Timothy Lane,"Determinants and Systemic Consequences of International Capital Flows,"in Determinants and Systemic Consequences of International Capital Flows (Washington,D.C.:International Monetary Fund,1991),p.5.This assumes a low level of international bond lending in 1973,which is almost certainly the case.Exact figures are not available. 7.See BIS,Sixtieth Annual Report,pp.208-9.See also pp.146-52,which offer data regarding some short-term instruments and indicate that open positions in interest rate futures and options totaled about $1.6 trillion at the end of 1989. 8.The early classic work was M.Feldstein and C.Horioka's"Domestic Savings and Interna- tional Capital Flows,"Economic Joumal 90 (June 1980),pp.314-29.For more on the issue and debates over it,see Ralph Bryant,International Financial Intermediation (Washington,D.C.: Brookings Institution,1987),pp.82-86.For a recent test,see Tamim Bayoumi,"Saving-Investment Correlations:Immobile Capital,Government Policy,or Endogenous Behavior?"IMF Staff Papers 37(June1990),Pp.360-87.428 International Organization The first step in evaluating the effects of contemporary levels of international capital mobility is to get a clear picture of where the levels stand in relation to the past. Long-term capital movements across borders were relatively limited for the first twenty-five years after World War I1 and took place primarily in the form of direct investment. Today, long-term international investment flows are extraordinarily large, and direct investment has been dwarfed by other, more arms-length, forms of cross-border capital movements. According to one source, net international bond and bank lending was $440 billion in 1989, up from $180 billion just five years earlier. Capital outflows from the thirteen leading industrialized countries averaged $444 billion in 1989, with almost two-thirds of the amount consisting of portfolio investment, in contrast to $52 billion in the late 1970s, with two-thirds consisting of foreign direct investment. Capital outflows were equivalent to 15 percent of world merchan￾dise trade in 1989, in contrast to 7 percent in the late 1970~.~ According to another source, the outstanding stock of international bank and bond lending was $3.6 trillion in 1989, equivalent to 25 percent of the aggregate gross national product (GNP) of the industrialized countries, in contrast to under $200 billion and 5 percent of aggregate GNP in 1973.6 Recent changes in regulations and technology have made it possible for money to travel across borders almost instantly, giving rise to massive short-term international financial transactions. In April 1989, foreign exchange trading in the world's financial centers averaged about $650 billion a day, equivalent to nearly $500 million a minute and to forty times the amount of world trade a day. Markets for short-term international financial instruments are comparably large, although exact figures are not available.' Impressive as these numbers are, they do not amount to full international capital mobility. In fact, economic studies have consistently shown that borders and currencies are still substantial barriers to investment flows.' Although Missiles." Wriston is cited in my Banking on the World: The Politics of American International Finance (New York: Harper & Row, 1987), p. 115. See also Walter Wriston, Risk and Other Four-Letter Words (New York: Harper & Row, 1986). 5. Bank for International Settlements (BIS), Sixtieth Annual Report (BIS: Basle, 1990), pp. 63, 82, and 125. 6. See Morris Goldstein, Donald Mathieson, and Timothy Lane, "Determinants and Systemic Consequences of International Capital Flows," in Determinants and Systemic Consequences of International Capital Flows (Washington, D.C.: International Monetary Fund, 1991), p. 5. This assumes a low level of international bond lending in 1973, which is almost certainly the case. Exact figures are not available. 7. See BIS, Sixtieth Annual Report, pp. 208-9. See also pp. 146-52, which offer data regarding some short-term instruments and indicate that open positions in interest rate futures and options A A totaled about $1.6 trillion at the end of 1989. 8. The early classic work was M. Feldstein and C. Horioka's "Domestic Savings and Interna￾tional Capital Flows," Economic Journal 90 (June 1980), pp. 314-29. For more on the issue and debates over it, see Ralph Bryant, International Financial Intermediation (Washington, D.C.: Brookings Institution, 1987), pp. 82-86. For a recent test, see Tamim Bayoumi, "Saving-Investment Correlations: Immobile Capital, Government Policy, or Endogenous Behavior?" IMF Staff Papers 37 (June 1990), pp. 360-87