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Trade deficits: causes and consequences

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  • David M. Gould
  • Roy J. Ruffin

Abstract

According to conventional wisdom, trade balances reflect a country's competitive strength-the lower the trade deficit, the stronger the country's industries and the higher its rate of economic growth. In this article, David Gould and Roy Ruffin review the history of the conventional wisdom and empirically examine whether large overall trade deficits or bilateral trade imbalances are associated with lower rates of economic growth. They find that, once the fundamental determinants of growth have been accounted for, trade imbalances have little effect on rates of economic growth.

Suggested Citation

  • David M. Gould & Roy J. Ruffin, 1996. "Trade deficits: causes and consequences," Economic and Financial Policy Review, Federal Reserve Bank of Dallas, issue Q IV, pages 10-20.
  • Handle: RePEc:fip:fedder:y:1996:i:qiv:p:10-20
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    File URL: http://www.dallasfed.org/assets/documents/research/er/1996/er9604b.pdf
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    References listed on IDEAS

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    1. N. Gregory Mankiw & David Romer & David N. Weil, 1992. "A Contribution to the Empirics of Economic Growth," The Quarterly Journal of Economics, Oxford University Press, vol. 107(2), pages 407-437.
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    Cited by:

    1. Gazi M. Hassan & Mark J. Holmes, 2016. "Do Remittances Facilitate a Sustainable Current Account?," The World Economy, Wiley Blackwell, vol. 39(11), pages 1834-1853, November.
    2. Arize, Augustine C., 2002. "Imports and exports in 50 countries: Tests of cointegration and structural breaks," International Review of Economics & Finance, Elsevier, vol. 11(1), pages 101-115, April.

    More about this item

    Keywords

    Deficit financing ; Free trade;

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