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Merchanting and current account balances

  • Elisabeth Beusch
  • Barbara Döbeli
  • Andreas M. Fischer
  • Pinar Yesin

Merchanting is goods trade that does not cross the border of the firm's resident country. Merchanting grew strongly in the last decade in select small open economies and has become an important driver of these countries' current account. Because merchanting firms reinvest their earnings abroad to expand their international activities, this practice raises national savings in the home country without increasing domestic investment. This results in a significantly large current account surplus. To show the empirical links between merchanting and the current account, two exercises are performed in this paper. The first exercise estimates the savings impact of merchanting countries in empirical models of the medium-term current account and shows that merchanting indeed increases the current account. The second exercise shows that merchanting's impact on the country's current account is sensitive to firm mobility.

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Paper provided by Federal Reserve Bank of Dallas in its series Globalization and Monetary Policy Institute Working Paper with number 140.

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Date of creation: 2013
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Handle: RePEc:fip:feddgw:140
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  1. Menzie D. Chinn & Eswar S. Prasad, 2000. "Medium-Term Determinants of Current Accounts in Industrial and Developing Countries: An Empirical Exploration," NBER Working Papers 7581, National Bureau of Economic Research, Inc.
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  3. William R. Cline & John Williamson, 2011. "Estimates of Fundamental Equilibrium Exchange Rates, May 2011," Policy Briefs PB11-5, Peterson Institute for International Economics.
  4. Gruber, Joseph W. & Kamin, Steven B., 2007. "Explaining the global pattern of current account imbalances," Journal of International Money and Finance, Elsevier, vol. 26(4), pages 500-522, June.
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  7. Robert C. Johnson & Guillermo Noguera, 2012. "Fragmentation and Trade in Value Added over Four Decades," NBER Working Papers 18186, National Bureau of Economic Research, Inc.
  8. Reda Cherif & Fuad Hasanov, 2012. "Oil Exporters' Dilemma; How Much to Save and How Much to Invest," IMF Working Papers 12/4, International Monetary Fund.
  9. Jaewoo Lee & Jonathan David Ostry & Alessandro Prati & Luca Antonio Ricci & Gian-Maria Milesi-Ferretti, 2008. "Exchange Rate Assessments; CGER Methodologies," IMF Occasional Papers 261, International Monetary Fund.
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