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Unbalanced Trade

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  • Samuel Kortum

    (University of Chicago)

  • Jonathan Eaton

    (New York University)

  • Robert Dekle

    (Federal Reserve Bank of New York and University of Southern California)

Abstract

We incorporate trade imbalances into a quantitative model of bilateral trade in manufactures, dividing the world into forty "countries." We calculate the pattern of bilateral trade and relative factor costs in a counterfactual world with all current accounts balancing. Our results indicate that closing the current accounts requires only modest changes in relative factor costs across countries. The extent of nontradability implied by the parameter estimates means that the implied changes in real factor returns are negligible. 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 only $65 billion from its current level of $167 billion.

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Bibliographic Info

Paper provided by Society for Economic Dynamics in its series 2007 Meeting Papers with number 921.

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Date of creation: 2007
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Handle: RePEc:red:sed007:921

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  1. Jonathan Eaton & Samuel Kortum, 2002. "Technology, Geography, and Trade," Econometrica, Econometric Society, vol. 70(5), pages 1741-1779, September.
  2. Stephen Redding & Anthony J. Venables, 2001. "Economic Geography and International Inequality," International Trade 0103003, EconWPA.
  3. Michael E. Waugh, 2009. "International trade and income differences," Staff Report 435, Federal Reserve Bank of Minneapolis.
  4. James E. Anderson & Eric van Wincoop, 2000. "Gravity with Gravitas: A Solution to the Border Puzzle," Boston College Working Papers in Economics 485, Boston College Department of Economics.
  5. Kenneth Rogoff & William Brainard & George Perry, . "Global Current Account Imbalances and Exchange Rate Adjustments," Working Paper 33687, Harvard University OpenScholar.
  6. 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.
  7. Andrew B Bernard & Jonathan Eaton & J. Bradford Jensen & Samuel Kortum, 2000. "Plants and productivity in international trade," Working Papers 00-08, Center for Economic Studies, U.S. Census Bureau.
  8. 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.
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