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The US Current Account, New Economy Services, and Implications for Sustainability

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  • Catherine L. Mann

Abstract

The paper considers the implications for sustainability of the US current account of widespread uptake of New Economy services around the world. The main contribution is to estimate new income elasticities for international trade in New Economy services and incorporate these in a simple model of the current accounts. Widespread uptake of New Economy services around the world improves the potential for a sustainable US external balance through two channels. First, uptake of New Economy services raises global growth. Second, it narrows the asymmetry in income elasticity of US trade. But, reasonable estimates of these two structural improvements are not sufficient to stabilize the US current account deficit. Copyright Blackwell Publishing Ltd 2004.

Suggested Citation

  • Catherine L. Mann, 2004. "The US Current Account, New Economy Services, and Implications for Sustainability," Review of International Economics, Wiley Blackwell, vol. 12(2), pages 262-276, May.
  • Handle: RePEc:bla:reviec:v:12:y:2004:i:2:p:262-276
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    References listed on IDEAS

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    1. Chinn, Menzie D. & Prasad, Eswar S., 2003. "Medium-term determinants of current accounts in industrial and developing countries: an empirical exploration," Journal of International Economics, Elsevier, vol. 59(1), pages 47-76, January.
    2. Simon Wren-Lewis & Rebecca Driver, 1998. "Real Exchange Rates for the Year 2000," Peterson Institute Press: Policy Analyses in International Economics, Peterson Institute for International Economics, number pa54, January.
    3. Catherine L. Mann, 1999. "Is the U.S. Trade Deficit Sustainable?," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 47.
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    Cited by:

    1. Uwitonze, Eric & Heshmati, Almas, 2016. "Service Sector Development and its Determinants in Rwanda," IZA Discussion Papers 10117, Institute for the Study of Labor (IZA).
    2. Barattieri, Alessandro, 2014. "Comparative advantage, service trade, and global imbalances," Journal of International Economics, Elsevier, vol. 92(1), pages 1-13.
    3. Catherine L. Mann & Katharina Plück, 2005. "The US Trade Deficit: A Disaggregated Perspective," Working Paper Series WP05-11, Peterson Institute for International Economics.
    4. Sebastian Edwards, 2005. "Is the U.S. Current Account Deficit Sustainable? And If Not, How Costly is Adjustment Likely To Be?," NBER Working Papers 11541, National Bureau of Economic Research, Inc.
    5. Alain GAUGRIS & El Mouhoub MOUHOUD, 2013. "International Specialization In Services: Insights From A New Theoretical Taxonomy," Region et Developpement, Region et Developpement, LEAD, Universite du Sud - Toulon Var, vol. 37, pages 197-230.
    6. Desireé van Welsum & Xavier Reif, 2009. "We Can Work It Out: The Globalization of ICT-Enabled Services," NBER Chapters,in: International Trade in Services and Intangibles in the Era of Globalization, pages 289-325 National Bureau of Economic Research, Inc.
    7. Abhijit Das & Rashmi Banga & Dinesh Kumar, 2011. "Global Economic Crisis : Impact and Restructuring of the Services Sector in India," Trade Working Papers 23225, East Asian Bureau of Economic Research.
    8. Sebastian Edwards, 2005. "The end of large current account deficits : 1970-2002 : are there lessons for the United States?," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, issue Aug, pages 205-268.
    9. Luigi Bonatti & Andrea Fracasso, 2009. "The evolution of the Sino-American Co-dependency: modelling a regime switch in a growth setting," Department of Economics Working Papers 0905, Department of Economics, University of Trento, Italia.
    10. Luigi Bonatti, 2007. "Home production, labor taxation and trade account," Department of Economics Working Papers 0715, Department of Economics, University of Trento, Italia.
    11. Philipp Engler & Michael Fidora & Christian Thimann, 2009. "External Imbalances and the US Current Account: How Supply-Side Changes Affect an Exchange Rate Adjustment ," Review of International Economics, Wiley Blackwell, vol. 17(5), pages 927-941, November.
    12. Bollino, Carlo Andrea, 2007. "Oil prices and the U.S. trade deficit," Journal of Policy Modeling, Elsevier, vol. 29(5), pages 729-738.
    13. Luigi Bonatti & Giulia Felice, 2010. "Trade And Growth In A Two-Country Model With Home Production And Uneven Technological Spillovers," Manchester School, University of Manchester, vol. 78(5), pages 484-509, September.
    14. Marquez, Jaime, 2006. "Estimating elasticities for U.S. trade in services," Economic Modelling, Elsevier, vol. 23(2), pages 276-307, March.
    15. Nouriel Roubini, 2006. "The BW 2 regime: an unstable disequilibrium bound to unravel," International Economics and Economic Policy, Springer, vol. 3(3), pages 303-332, December.
    16. Antonis Adam & Panos Hatzipanayotou & Thomas Moutos, 2015. "Labour Market Regulation, Fiscal Consolidation, and the Success of Current Account Adjustments," DEOS Working Papers 1517, Athens University of Economics and Business.
    17. Jaime R. Marquez, 2005. "Estimating elasticities for U.S. trade in services," International Finance Discussion Papers 836, Board of Governors of the Federal Reserve System (U.S.).
    18. Bernhard Gräf, 2007. "US current account deficit: No reason to panic!," CESifo Forum, Ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 8(4), pages 31-38, January.
    19. Haider Mahmood & Tarek Tawfik Yousef Alkhateeb & Tarek Tawfik Yousef Alkhateeb, 2017. "Testing Asymmetrical Effect of Exchange Rate on Saudi Service Sector Trade: A Non-linear Auto-regressive Distributive Lag Approach," International Journal of Economics and Financial Issues, Econjournals, vol. 7(1), pages 73-77.
    20. Johan Fourie & Dieter von Fintel, 2009. "World Rankings of Comparative Advantage in Service Exports," Working Papers 03/2009, Stellenbosch University, Department of Economics.
    21. Hisanaga, Makoto, 2015. "Dynamics of the Comparative Advantage Structure and their Differences between Goods and Services," Discussion paper series. A 284, Graduate School of Economics and Business Administration, Hokkaido University.
    22. repec:spr:weltar:v:153:y:2017:i:3:d:10.1007_s10290-016-0274-9 is not listed on IDEAS
    23. Desirée Van Welsum, 2004. "In Search of ‘Offshoring’: Evidence from U.S. Imports of Services," Birkbeck Working Papers in Economics and Finance 0402, Birkbeck, Department of Economics, Mathematics & Statistics.

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