C. Fred Bergsten, Session Topic: International Trade and Finance: Balance of Payments and International Investment: Discussion, The Journal of Finance, Vol. 29, No. 2, Papers and Proceedings of the Thirty-Second Annual Meeting of the American Finance Association, New York, New York, December 28-30, 1973 (May, 1974), pp. 677-680

Andreas G. Papandreou, C. Fred Bergsten, Session Topic: The Multinational Firm: Bane or Boon: Discussion, The Journal of Finance, Vol. 28, No. 2, Papers and Proceedings of the Thirty-First Annual Meeting of the American Finance Association Toronto, Canada, December 28-30, 1972 (May, 1973), pp. 455-462

Increasing economic interdependence can perhaps best be defined as a growing impact of external events on national economies. One of its major implications for research is that all national economic models must be opened to encompass meaningfully the foreign sector. Economists in most countries have opened their models long ago, but most American economists have not. Yet the share of exports in the U.S. economy has doubled in the last fifteen years, and the share of imports has doubled in just seven years. These U.S. ratios (about 7 percent, and still rising rapidly) are now only slightly below the same ratios in Japan and the European Common Market as a group (about 9 percent, and fairly stable). In addition, about one-third of the profits of U.S. corporations now derive from overseas activities, primarily their foreign direct investments. If these profits are taken into account along with trade, the U.S. economy has probably become more open than Japan or Western Europe (as a unit) in quantitative terms. Even the absolute numbers are impressive: the U.S. trade balance, excluding the effects of the rise in oil prices, strengthened by at least $35 billion from 1972 through 1975-without which our gross national product would have been over two percentage points lower. This openness has become critically important for U.S. economic policy. The overvaluation of the dollar was adding almost one full percentage point to the U.S. unemployment rate in 1971. External factors accounted for one-quarter to onehalf of the rise in the rate of inflation from 1972 through 1974 (Richard Berner, Peter Clark, J. Enzler and Barbara Lowrey). The United States can no longer export its internal inflation through the operation of a dollar-based system of fixed exchange rates as it did to a significant degree in the late 1960's (Bergsten 1976). Oil and food are only the most obvious examples of external shocks to particular U.S. economic sectors. About 20 percent of U.S. industrial production and over one-third of U.S. farm output are exported. The United States already imports more than 50 percent of its needs of nine of the thirteen key industrial raw materials. Closed models can no longer accurately depict or forecast the U.S. economy at either the macroeconomic or sectoral levels-.