IDEAS home Printed from https://ideas.repec.org/p/nbr/nberwo/13035.html
   My bibliography  Save this paper

Unbalanced Trade

Author

Listed:
  • Robert Dekle
  • Jonathan Eaton
  • Samuel Kortum

Abstract

We incorporate trade imbalances into a quantitative model of bilateral trade in manufactures, dividing the world into forty countries. Fitting the model to 2004 data on GDP and bilateral trade we calculate how relative wages, real wages, and welfare would differ in a counterfactual world with all current accounts balancing. Our results indicate that closing the current accounts requires modest changes in relative wages. The country with the largest deficit (the United States) needs its wage to fall by around 10 percent relative to the country with the largest surplus (Japan). But the prevalence of nontraded goods means that the real wage in Japan barely rises while the U.S. real wage falls by less than 1 percent. The geographic barriers implied by the current pattern of trade are sufficiently asymmetric that large bilateral deficits remain even after current accounts balance. The U.S. manufacturing trade deficit with China falls to $65 billion from its 2004 level of $167 billion.

Suggested Citation

  • Robert Dekle & Jonathan Eaton & Samuel Kortum, 2007. "Unbalanced Trade," NBER Working Papers 13035, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:13035
    Note: IFM ITI PR
    as

    Download full text from publisher

    File URL: http://www.nber.org/papers/w13035.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Andrew B. Bernard & Jonathan Eaton & J. Bradford Jensen & Samuel Kortum, 2003. "Plants and Productivity in International Trade," American Economic Review, American Economic Association, vol. 93(4), pages 1268-1290, September.
    2. James E. Anderson & Eric van Wincoop, 2003. "Gravity with Gravitas: A Solution to the Border Puzzle," American Economic Review, American Economic Association, vol. 93(1), pages 170-192, March.
    3. Maurice Obstfeld & Kenneth S. Rogoff, 2005. "Global Current Account Imbalances and Exchange Rate Adjustments," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 36(1), pages 67-146.
    4. Redding, Stephen & Venables, Anthony J., 2004. "Economic geography and international inequality," Journal of International Economics, Elsevier, vol. 62(1), pages 53-82, January.
    5. World Bank, 2006. "World Development Indicators 2006," World Bank Publications - Books, The World Bank Group, number 8151, December.
    6. Michael E. Waugh, 2010. "International Trade and Income Differences," American Economic Review, American Economic Association, vol. 100(5), pages 2093-2124, December.
    7. Marc J. Melitz, 2003. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," Econometrica, Econometric Society, vol. 71(6), pages 1695-1725, November.
    8. Alvarez, Fernando & Lucas, Robert Jr., 2007. "General equilibrium analysis of the Eaton-Kortum model of international trade," Journal of Monetary Economics, Elsevier, vol. 54(6), pages 1726-1768, September.
    9. Dimitri B. Papadimitriou & Gennaro Zezza & Greg Hannsgen, 2006. "Can Global Imbalances Continue?: Policies for the U.S. Economy," Economics Strategic Analysis Archive sa_nov_06, Levy Economics Institute.
    10. Jonathan Eaton & Samuel Kortum, 2002. "Technology, Geography, and Trade," Econometrica, Econometric Society, vol. 70(5), pages 1741-1779, September.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Costinot, Arnaud & Rodríguez-Clare, Andrés, 2014. "Trade Theory with Numbers: Quantifying the Consequences of Globalization," Handbook of International Economics, in: Gopinath, G. & Helpman, . & Rogoff, K. (ed.), Handbook of International Economics, edition 1, volume 4, chapter 0, pages 197-261, Elsevier.
    2. Kristian Behrens & Giordano Mion & Yasusada Murata & Jens Südekum, 2014. "Trade, Wages, And Productivity," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 55(4), pages 1305-1348, November.
    3. Robert Dekle & Jonathan Eaton & Samuel Kortum, 2008. "Global Rebalancing with Gravity: Measuring the Burden of Adjustment," IMF Staff Papers, Palgrave Macmillan, vol. 55(3), pages 511-540, July.
    4. Treb Allen & Costas Arkolakis & Yuta Takahashi, 2020. "Universal Gravity," Journal of Political Economy, University of Chicago Press, vol. 128(2), pages 393-433.
    5. Simonovska, Ina & Waugh, Michael E., 2014. "The elasticity of trade: Estimates and evidence," Journal of International Economics, Elsevier, vol. 92(1), pages 34-50.
    6. Redding, Stephen J., 2016. "Goods trade, factor mobility and welfare," Journal of International Economics, Elsevier, vol. 101(C), pages 148-167.
    7. Head, Keith & Mayer, Thierry, 2014. "Gravity Equations: Workhorse,Toolkit, and Cookbook," Handbook of International Economics, in: Gopinath, G. & Helpman, . & Rogoff, K. (ed.), Handbook of International Economics, edition 1, volume 4, chapter 0, pages 131-195, Elsevier.
    8. Joel Rodrigue, 2014. "Multinational Production, Exports and Aggregate Productivity," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 17(2), pages 243-261, April.
    9. Finicelli, Andrea & Pagano, Patrizio & Sbracia, Massimo, 2013. "Ricardian selection," Journal of International Economics, Elsevier, vol. 89(1), pages 96-109.
    10. Gregory Corcos & Massimo Del Gatto & Giordano Mion & Gianmarco I.P. Ottaviano, 2012. "Productivity and Firm Selection: Quantifying the ‘New’ Gains from Trade," Economic Journal, Royal Economic Society, vol. 122(561), pages 754-798, June.
    11. French, Scott, 2016. "The composition of trade flows and the aggregate effects of trade barriers," Journal of International Economics, Elsevier, vol. 98(C), pages 114-137.
    12. Stephen J. Redding, 2020. "Trade and Geography," NBER Working Papers 27821, National Bureau of Economic Research, Inc.
    13. Behrens, Kristian & Mion, Giordano & Murata, Yasusada & Suedekum, Jens, 2017. "Spatial frictions," Journal of Urban Economics, Elsevier, vol. 97(C), pages 40-70.
    14. Waugh, Michael E. & Ravikumar, B., 2016. "Measuring openness to trade," Journal of Economic Dynamics and Control, Elsevier, vol. 72(C), pages 29-41.
    15. Simonovska, Ina & Waugh, Michael E., 2014. "The elasticity of trade: Estimates and evidence," Journal of International Economics, Elsevier, vol. 92(1), pages 34-50.
    16. Rahel Aichele, 2013. "Trade, Climate Policy and Carbon Leakage - Theory and Empirical Evidence," ifo Beiträge zur Wirtschaftsforschung, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, number 49.
    17. Patrizio Pagano & Massimo Sbracia & Andrea Finicelli, 2008. "Trade-revealed TFP," 2008 Meeting Papers 717, Society for Economic Dynamics.
    18. The University of Iowa & Michael Waugh, 2008. "Bilateral Trade, Relative Prices, and Trade Costs," 2008 Meeting Papers 781, Society for Economic Dynamics.
    19. repec:hal:wpspec:info:hdl:2441/dambferfb7dfprc9m01g1j1k2 is not listed on IDEAS
    20. Richard Baldwin & James Harrigan, 2011. "Zeros, Quality, and Space: Trade Theory and Trade Evidence," American Economic Journal: Microeconomics, American Economic Association, vol. 3(2), pages 60-88, May.
    21. Mike Waugh & B Ravikumar, 2016. "Trade Potential: A New Measure of Openness," 2016 Meeting Papers 1329, Society for Economic Dynamics.

    More about this item

    JEL classification:

    • F17 - International Economics - - Trade - - - Trade Forecasting and Simulation
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:13035. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: the person in charge (email available below). General contact details of provider: https://edirc.repec.org/data/nberrus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.