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The Role of Time Preferences in Explaining the Long-Term Pattern of International Trade

Author

Listed:
  • Marian Leimbach

    (PIK – Potsdam Institute for Climate Impact Research, P.O. Box 60 12 03, D-14412 Potsdam, Germany)

  • Lavinia Baumstark

    (PIK – Potsdam Institute for Climate Impact Research, P.O. Box 60 12 03, D-14412 Potsdam, Germany)

  • Gunnar Luderer

    (PIK – Potsdam Institute for Climate Impact Research, P.O. Box 60 12 03, D-14412 Potsdam, Germany)

Abstract

Globalization is accompanied by increasing current account imbalances. They can undermine the positive impacts of increasing international cooperation and trade on economic growth. By applying an economic growth model that requests for long-term compensation of short-term current account deficits, we derive patterns of international trade. Model output, however, is challenged by empirical data – which is related to the Lucas Paradox. This paper demonstrates how, based on the assumption of differentiated time preferences, model results and empirical data are reconciled with each other. The method presented here yields an indirect estimate of the rates of time preference across regions. Our results suggest that the time preference rate is low in emerging Asian countries, while the USA and Europe are characterized by above world-average rates. Based on the applied model that differentiates between trade in energy resources and a composite good, simulated trade patterns of these three world regions significantly differ from each other and also from trade patterns that occur in resource exporting countries.

Suggested Citation

  • Marian Leimbach & Lavinia Baumstark & Gunnar Luderer, 2015. "The Role of Time Preferences in Explaining the Long-Term Pattern of International Trade," Global Economy Journal (GEJ), World Scientific Publishing Co. Pte. Ltd., vol. 15(1), pages 83-106, March.
    • Handle: RePEc:wsi:gejxxx:v:15:y:2015:i:01:n:gej-2014-0035
    DOI: 10.1515/GEJ-2014-0035
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    Cited by:

    1. Marian Leimbach & Anselm Schultes & Lavinia Baumstark & Anastasis Giannousakis & Gunnar Luderer, 2017. "Solution algorithms for regional interactions in large-scale integrated assessment models of climate change," Annals of Operations Research, Springer, vol. 255(1), pages 29-45, August.
    2. Marian Leimbach & Nico Bauer, 2022. "Capital markets and the costs of climate policies," Environmental Economics and Policy Studies, Springer;Society for Environmental Economics and Policy Studies - SEEPS, vol. 24(3), pages 397-420, July.

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