Comparative advantage, service trade, and global imbalances (original) (raw)

Global Trade Imbalances – an Analysis Before and After the Global Economic Crisis

ЗБОРНИК РАДОВА ЕКОНОМСКОГ ФАКУЛТЕТА У ИСТОЧНОМ САРАЈЕВУ, 2018

The scope of this paper is to define thenotion of global imbalances as well as to present theamounts of trade imbalances of the world's largest tradersin the period before and in the aftermath of the globaleconomic crisis. Although the global economic crisis hassomewhat corrected high deficits, or surpluses of the world'slargest traders, data show that after the recovery of worldtrade after the global economic crisis, there is a resumptionof trade imbalances in these countries. The global tradeimbalances of the world's largest traders are shown inabsolute terms as the difference between the import andexport of goods, but also in relative terms expressed as ashare of the surplus or deficit in the gross domestic productof each country. It is important to point out that thirteencountries whose trade imbalances are represented in thispaper, either individually or as aggregated within a group ofcountries, make up over half of the world's total trade ingoods.

Asymmetric trade liberalizations and current account dynamics

Canadian Journal of Economics/Revue canadienne d'économique

In this paper, I show a strong positive correlation between the value-added share of manufacturing in 2000 and current account balances in 2007 for the Euro area countries. I propose asymmetries in the timing of trade liberalizations as a new mechanism affecting the dynamics of the current account. I build intuition using a simple model. Then, I use an international business cycle model to show how the asymmetric dynamics of trade costs in manufacturing and services in 2000-2007 can partially explain the rise in the German surplus. Lastly, I provide broad empirical support for the key predictions of the theory.

A Trade TheoristÕs Take on Global Imbalance

This paper uses simple trade theory to interpret global imbalance. A world equilibrium in which one country runs a trade surplus and the other a deficit can be interpreted as the welfare improving outcome of free inter-temporal trade. However, comparative advantage would predict that the surplus would arise in the more slowly growing economy, unless consumer preferences differ sufficiently to reverse that. In order to explain the apparent situation of the United States and China in the world today without resorting to such differences in preferences, the paper suggests that both countries may be using policies that, in effect, subsidize the export of the goods in which they have comparative inter-temporal disadvantage. If this is the case, the resulting trade reduces world welfare compared to autarky, and it can easily make both countries worse off.

The Gravity Equation in International Trade in Services

Review of World Economics, 2006

The main purpose of this paper is to assess the impact of various factors on bilateral services trade, relative to that on bilateral goods trade. To accomplish this purpose, using the standard gravity model, we ran regressions on bilateral services trade and goods trade from 10 OECD member countries to other economies (including OECD and non-OECD member countries) for the years 1999 and 2000. The results show that the gravity equation for services trade is as robust as (if not more robust than) the gravity equation for goods trade, and that there are some differences between services and goods trade, with regard to the elasticities of the explanatory variables. Among others, we found that geographical distance is consistently more important for services trade than for goods trade. This result may indicate that the cost of transport for tradable services is "in general" higher than that for goods. But there is a need of further investigation using the disaggregate services trade data to find out why geographical distance is more important for the flows of traded services than for goods trade. We also found that membership in the same regional trade arrangement has a significant impact on both services trade and goods trade. The results suggest that even though many of the regional trade arrangements to date fail to include services explicitly, they certainly facilitate services trade at least as much as it facilitates goods trade. Another interesting result is that both goods trade and services trade are positively affected by economic freedom but the effect is much stronger for services trade. This implies that as countries moves toward economic liberalization, services trade will grow faster than goods trade, and hence services trade will play even more important role in the global economy. Lastly, we show that while service exports and goods imports are not complements, goods exports and service imports are complements. This result may reflect the existence of trade in factor services which helps increase the exports of goods.

Trade Integration, Restructuring and Global Imbalances - A Tale of Two Countries

2011

China is widely seen as one of the sources of global macroeconomic imbalances. Its persistent current account surplus and capital exports to the United States are even cited as one of the causes of the global financial crisis. The most common explanation traces China's current account surplus to a mismatch between saving and investment due to inefficiently low domestic demand. We challenge this explanation. Our argument rests on an analogy that we construct between two countries generally thought to be very different: Russia and China. Russia, a raw materials exporting country, has been running current account surpluses similar to China's in relation to GDP. As for most raw materials exporting countries this is considered normal, reflecting efficient reinvestment of wealth from natural resources in financial assets. We show that a similar efficiency argument can be constructed for China, although the nature of wealth that is reinvested in financial assets is different in the...

CESifo-Delphi Conferences on Global Economic Imbalances: Prospects and Remedies

We investigate the medium-term determinants of the current account using a model that controls for factors related to institutional development, with a goal of informing the recent debate over the existence and relevance of the "savings glut." The economic environmental factors that we consider are the degree of financial openness and the extent of legal development. We find that for industrial countries, the government budget balance is an important determinant of the current account balance; the budget balance coefficient is 0.21 in a specification controlling for institutional variables. More interestingly, our empirical findings are not consistent with the argument that the more developed financial markets are, the less saving a country undertakes. We find that this posited relationship is applicable only for countries with highly developed legal systems and open financial markets. For less developed countries and emerging market countries we usually find the reverse correlation; greater financial development leads to higher savings. Furthermore, there is no evidence of "excess domestic saving" in the Asian emerging market countries; rather they seem to have suffered from depressed investment in the wake of the 1997 financial crises. We also find evidence that the more developed equity markets are, the more likely countries are to run current account deficits.