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The China-US co-dependency and the elusive costs of growth rebalancing

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  • Luigi Bonatti

    ()

  • Andrea Fracasso

    ()

Abstract

The global crisis burst in 2007 has revived the growth-rebalancing debate and backed the position of those advocating a fast reduction of the global imbalances centered on the symbiotic US-China relationship. In this work, we develop a two-country two-stage growth model reproducing the main features of the Sino-American co-dependency and we analyze alternative (medium- and long-term) scenarios for its evolution. We show that altering the Chinese exchange rate policy and down-sizing the US external deficits with a view to moving the production of tradables toward the US may imply some relevant costs. If exchange rate and fiscal policies are not properly tuned in both countries, the rebalancing process may lead to the emergence of structural unemployment in the US (due to the greater labor intensity of growth recorded in the nontradable sector than in the tradable sector) and to a slow-down in the process whereby the Chinese labor force is gradually absorbed in the modern sectors of the economy

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Bibliographic Info

Paper provided by Department of Economics, University of Trento, Italia in its series Department of Economics Working Papers with number 1004.

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Date of creation: 2010
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Handle: RePEc:trn:utwpde:1004

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Keywords: Growth-rebalancing; global imbalances; structural unemployment;

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Cited by:
  1. Luigi Bonatti & Andrea Fracasso, 2010. "Global Rebalancing and the Future of the Sino-US Codependency," China & World Economy, Institute of World Economics and Politics, Chinese Academy of Social Sciences, vol. 18(s1), pages 70-87.
  2. Luigi Bonatti & Andrea Fracasso, 2011. "Chinese reserves accumulation and US monetary policy: Will China go on buying US financial assets?," Department of Economics Working Papers 1105, Department of Economics, University of Trento, Italia.

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