Trade reforms and current account imbalances
AbstractIn partial equilibrium, a reduction in import barriers may be thought to lead to an increase in imports and a reduction in trade surplus. However, the general equilibrium effect can go in the opposite direction. We study how trade reforms affect current accounts by embedding a modified Heckscher-Ohlin structure and an endogenous discount factor into an intertemporal model of current account. We show that trade liberalizations in a developing country would generally lead to capital outflow. In contrast, trade liberalizations in a developed country would result in capital inflow. Thus, efficient trade reforms can contribute to global current account imbalances, but these imbalances do not need policy "corrections".
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Bibliographic InfoPaper provided by Bank of Finland, Institute for Economies in Transition in its series BOFIT Discussion Papers with number 25/2013.
Length: 49 pages
Date of creation: 04 Sep 2013
Date of revision:
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Find related papers by JEL classification:
- F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
- F49 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Other
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-09-25 (All new papers)
- NEP-CWA-2013-09-25 (Central & Western Asia)
- NEP-INT-2013-09-25 (International Trade)
- NEP-LAM-2013-09-25 (Central & South America)
- NEP-LTV-2013-09-25 (Unemployment, Inequality & Poverty)
- NEP-NEU-2013-09-25 (Neuroeconomics)
- NEP-OPM-2013-09-25 (Open Economy Macroeconomic)
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