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Factor Market Distortion and the Current Account Surplus in China

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  • Yiping Huang

    (China Center for Economic Research, Peking University, Yiheyuan Road No. 5, Beijing, China 100871.)

  • Kunyu Tao

    (China Center for Economic Research, Peking University, Yiheyuan Road No. 5, Beijing, China 100871.)

Abstract

China's large current account surpluses not only destabilize its own macroeconomic conditions, but are also a focal point for global rebalancing discussions. Existing explanations by the literature fail either to account for the recent surge or to offer actionablepolicy responses. In this study, we propose an alternative hypothesis: asymmetric market liberalization and associated cost distortions. These distortions are producer subsidy equivalents, which contributed to both extraordinary growth performance and the growing structural imbalances. Our rough estimates of such factor cost distortions offer some explanations for recent movements of the current account. We argue that China needs to adopt a comprehensive reform package to rebalance its economy. (c) 2010 The Earth Institute at Columbia University and the Massachusetts Institute of Technology.

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Bibliographic Info

Article provided by MIT Press in its journal Asian Economic Papers.

Volume (Year): 9 (2010)
Issue (Month): 3 (October)
Pages: 1-36

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Handle: RePEc:tpr:asiaec:v:9:y:2010:i:3:p:1-36

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Cited by:
  1. Huang, Yiping & Wang, Daili & Fan, Gang, 2014. "Paths to a Reserve Currency: Internationalization of the Renminbi and Its Implications," ADBI Working Papers 482, Asian Development Bank Institute.
  2. Dennis Tao Yang, 2012. "Aggregate Savings and External Imbalances in China," Journal of Economic Perspectives, American Economic Association, vol. 26(4), pages 125-46, Fall.
  3. Rod Tyers, 2013. "International Effects of China's Rise and Transition: Neoclassical and Keynesian Perspectives," CAMA Working Papers 2013-44, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
  4. Yao, Yang, 2014. "The Chinese Growth Miracle," Handbook of Economic Growth, in: Handbook of Economic Growth, edition 1, volume 2, chapter 7, pages 943-1031 Elsevier.
  5. Françoise Lemoine & Deniz Ünal, 2012. "Scanning the Ups and Downs of China’s Trade Imbalances," Working Papers 2012-14, CEPII research center.

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