Trade Reforms and Current Account Imbalances: When Does the General Equilibrium Effect Overturn a Partial Equilibrium Intuition?
AbstractWhile a reduction in import barriers in a partial equilibrium may be thought to lead to an increase in imports and a reduction in trade surplus, 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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Date of creation: Dec 2012
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- Ju, Jiandong & Shi, Kang & Wei, Shang-Jin, 2013. "Trade Reforms and Current Account Imbalances: When Does the General Equilibrium Effect Overturn a Partial Equilibrium Intuition?," CEPR Discussion Papers, C.E.P.R. Discussion Papers 9293, C.E.P.R. Discussion Papers.
- F2 - International Economics - - International Factor Movements and International Business
- F3 - International Economics - - International Finance
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