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The U.S. External Deficit and the Developing Countries


  • William R. Cline



In the absence of US fiscal adjustment and a further correction of the dollar, the current account deficit is headed to $1.3 trillion by 2010 (8 to 8.5 percent of GDP) and net US foreign liabilities to over $8 trillion (50 percent of GDP). According to CGD/IIE Senior Fellow William R. Cline, the rising trade deficit and associated borrowing from abroad are now financing a decline in personal saving and a rise in the government deficit. This imbalance will increasingly put the US economy—and the developing countries—at risk. This working paper focuses on the impact that the US external deficit and a possible “hard landing” for the US and world economies will have on developing countries. Cline finds that these countries are at risk since they have relied heavily on a continuing expansion of trade surpluses with the United States as a source of demand. Developing countries with high borrowing abroad are also doubly sensitive to a spike in world interest rates—once directly from higher US interest rates, and once indirectly through higher risk spreads—that might be associated with a hard landing. This Working Paper is based on The United States as a Debtor Nation, a book published in 2005 by the Center for Global Development and the Institute for International Economics.

Suggested Citation

  • William R. Cline, 2006. "The U.S. External Deficit and the Developing Countries," Working Papers 86, Center for Global Development.
  • Handle: RePEc:cgd:wpaper:86

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    More about this item


    trade deficit; personal savings; world economy; trade surplus;

    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E0 - Macroeconomics and Monetary Economics - - General
    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance

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