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Can International Productivity Differences Alone Account for the US Current Account Deficits?

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  • Suparna Chakraborty
  • Robert Dekle

Abstract

An influential explanation for the recent rise in the US current account deficit is the boom in US productivity. As US productivity surged in the mid-1990s, capital was attracted to the US to take advantage of the higher real returns. Using a two-country general-equilibrium model, this paper quantitatively shows that the gap in productivity growth between the US and the "rest of the world" cannot explain the US current account deficits, especially in the 1980s and the 2000s. This is because on a GDP-weighted basis, the "rest of the world" actually had higher productivity growth during these periods, and standard macroeconomic models would predict an outflow of funds from the US to the rest of the world, and a consequent US current account surplus . We show that changes in global financial integration can help explain this anomaly in US current account behavior. Copyright © 2009 Blackwell Publishing Ltd.

Suggested Citation

  • Suparna Chakraborty & Robert Dekle, 2009. "Can International Productivity Differences Alone Account for the US Current Account Deficits?," Review of International Economics, Wiley Blackwell, vol. 17(4), pages 689-715, September.
  • Handle: RePEc:bla:reviec:v:17:y:2009:i:4:p:689-715
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    References listed on IDEAS

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    Cited by:

    1. Amaya Altuzarra & Jesús Ferreiro & Felipe Serrano, 2010. "The role of global imbalances as a cause of the current crisis," Journal of Innovation Economics, De Boeck Université, vol. 0(2), pages 25-48.
    2. Fabrizio Coricelli & Andreas Wörgötter, 2012. "Structural Change and the Current Account: The Case of Germany," OECD Economics Department Working Papers 940, OECD Publishing.
    3. Coricelli, Fabrizio & Ravasan, Farshad R & Wörgötter, Andreas, 2013. "The origins of the German current account surplus: Unbalanced productivity growth and structural change," CEPR Discussion Papers 9527, C.E.P.R. Discussion Papers.
    4. Ogawa, Eiji & Iwatsubo, Kentaro, 2009. "External adjustments and coordinated exchange rate policy in Asia," Journal of Asian Economics, Elsevier, vol. 20(3), pages 225-239, May.

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