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Trade, FDI, and Global Imbalances

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  • Li, Wei
  • Nie, Guangyu
  • Wang, Zi

Abstract

We propose a multi-country dynamic general equilibrium model to quantify the implications of trade and FDI liberalizations for the surge of global trade and current account (CA) imbalances. We calibrate our model to replicate the evolution of bilateral trade and FDI flows across 5 major economies as well as their CA balances over 1996–2014. Our counterfactual experiments suggest that the decline in trade and FDI costs accounts for about half of the increase in global trade imbalances and a quarter of the increase in CA imbalances over this period. Moreover, we find that the openness of the Chinese economy after 2001 has little impacts on global imbalances, whereas the unbundling of the U.S. outward FDI is a major driver of global imbalances.

Suggested Citation

  • Li, Wei & Nie, Guangyu & Wang, Zi, 2020. "Trade, FDI, and Global Imbalances," Journal of International Money and Finance, Elsevier, vol. 105(C).
  • Handle: RePEc:eee:jimfin:v:105:y:2020:i:c:s0261560620301443
    DOI: 10.1016/j.jimonfin.2020.102188
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    More about this item

    Keywords

    Trade; FDI; Trade imbalance; Current account imbalance;
    All these keywords.

    JEL classification:

    • F15 - International Economics - - Trade - - - Economic Integration
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies

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