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Comparative advantage, service trade, and global imbalances

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  • Barattieri, Alessandro

Abstract

The large current account deficit of the U.S. is the result of a large deficit in the goods balance and a modest surplus in the service balance. The opposite is true for Japan, Germany, and China. Moreover, I document the emergence from the mid-nineties of a strong negative relation between specialization in the export of services and the current account balances of a large sample of OECD and developing countries. Starting from these new stylized facts, I propose in this paper a service hypothesis for global imbalances, a new explanation based on the interplay between the U.S. comparative advantage in services and the asymmetric trade liberalization process in goods trade versus service trade that took place starting in the mid-nineties. First, I use a structural gravity model to show that service trade liberalization lagged behind goods trade liberalization, and I quantify the extent of this asymmetry. Second, I show that a simple two-period model can rationalize the emergence of current account deficits in the presence of such asymmetric liberalization. The key inter-temporal mechanism is the asymmetric timing of trade policies, which affects saving decisions. Finally, I explore the quantitative relevance of this explanation for global imbalances. I introduce trade costs in an otherwise standard 2-sector 2-country international real business cycle model. When fed with the asymmetric trade liberalization path found in the data, the model generates a trade deficit of about 5% of GDP. I conclude that the service hypothesis for global imbalances is quantitatively relevant.

Suggested Citation

  • Barattieri, Alessandro, 2014. "Comparative advantage, service trade, and global imbalances," Journal of International Economics, Elsevier, vol. 92(1), pages 1-13.
  • Handle: RePEc:eee:inecon:v:92:y:2014:i:1:p:1-13 DOI: 10.1016/j.jinteco.2013.11.004
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    Cited by:

    1. Daqing Yao & John Whalley, 2016. "Global Service Efficiency and the Role of Special and Differential Based Negotiation," NBER Working Papers 22362, National Bureau of Economic Research, Inc.
    2. repec:eee:inecon:v:106:y:2017:i:c:p:83-103 is not listed on IDEAS
    3. Ricardo Reyes-Heroles, 2017. "The Role of Trade Costs in the Surge of Trade Imbalances," 2017 Meeting Papers 212, Society for Economic Dynamics.
    4. French, Scott, 2017. "Revealed comparative advantage: What is it good for?," Journal of International Economics, Elsevier, pages 83-103.
    5. repec:pal:imfecr:v:65:y:2017:i:3:d:10.1057_s41308-017-0036-2 is not listed on IDEAS

    More about this item

    Keywords

    Comparative advantage; Service trade; Global imbalances;

    JEL classification:

    • F1 - International Economics - - Trade
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F40 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - General

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