International linkages of national capital markets have strengthened in recent years, as many nations have relaxed restrictions over their financial markets and as technical advances have speeded communications. While some controls over capital movements remain, the degree of integration is impressive--and has been for years, well before it became fashionable to speak of "globalization." This article examines the volatility of capital movements relative to national outputs for 11 industrial countries.

The author finds that the volatility of capital flows appears to be no greater now than in the late 1960s. He also finds that while countries experience external economic shocks quite frequently, the majority of shocks in most countries seem to originate in the goods markets rather than in the capital markets, although the very largest shocks have apparently been in capital markets. Contrary to conventional wisdom, capital-movement shocks are administered as frequently by funds invested in some form of long-term assets as by funds invested in short-term assets, although the largest swings occur in short-term capital. The article concludes with some policy recommendations.