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Comparative Advantage, Service Trade, and Global Imbalances

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  • Alessandro Barattieri

Abstract

The large current account deficit of the U.S. is the result of a large deficit in the goods balance and a modest surplus in the service balance. The opposite is true for Japan, Germany and China. Moreover, I document the emergence from the mid-nineties of a strong negative relation between specialization in export of services and current account balances in a large sample of OECD and developing countries. Starting from these new stylized facts, I propose in this paper a “service hypothesis” for global imbalances, a new explanation based on the interplay between the U.S. comparative advantage in services and the asymmetric trade liberalization process in goods trade versus service trade that took place in the last 15 years. First, I use a structural gravity model to show that service trade liberalization lagged behind goods trade liberalization, and I quantify the extent of this asymmetry. Second, I show that a simple two-period model can rationalize the emergence of current account deficits in the presence of such asymmetric liberalization. The key inter-temporal mechanism is the asymmetric timing of trade policies, which affects savings decisions. Finally, I explore the quantitative relevance of this explanation for global imbalances. A multi-period version of the model, fed with the asymmetric trade liberalization path found in the data, generates a current account deficit of about 1% of GDP (roughly 20% of what was observed in the U.S. in 2006).

Suggested Citation

  • Alessandro Barattieri, 2011. "Comparative Advantage, Service Trade, and Global Imbalances," Cahiers de recherche 1134, CIRPEE.
  • Handle: RePEc:lvl:lacicr:1134
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    Cited by:

    1. Alessandro Barattieri, 2022. "Asymmetric trade liberalizations and current account dynamics," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 55(2), pages 905-936, May.
    2. Joseph Steinberg, 2019. "On the Source of U.S. Trade Deficits: Global Saving Glut or Domestic Saving Drought?," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 31, pages 200-223, January.
    3. Coulibaly, Dramane & Gnimassoun, Blaise & Mignon, Valérie, 2020. "The tale of two international phenomena: Migration and global imbalances," Journal of Macroeconomics, Elsevier, vol. 66(C).
    4. Gruhle, Tobias & Harms, Philipp, 2022. "Producer Services and the Current Account," Journal of International Money and Finance, Elsevier, vol. 121(C).
    5. Niţă Sorin Cristian & Radulică Marilena Ionica & Dorneanu Mihai, 2020. "Current account deficits and implications on Romanian economy," Proceedings of the International Conference on Business Excellence, Sciendo, vol. 14(1), pages 995-1004, July.
    6. Barattieri, Alessandro & Cacciatore, Matteo & Ghironi, Fabio, 2021. "Protectionism and the business cycle," Journal of International Economics, Elsevier, vol. 129(C).
    7. Li, Wei & Nie, Guangyu & Wang, Zi, 2020. "Trade, FDI, and Global Imbalances," Journal of International Money and Finance, Elsevier, vol. 105(C).
    8. Ju, Jiandong & Shi, Kang & Wei, Shang-Jin, 2021. "Trade reforms and current account imbalances," Journal of International Economics, Elsevier, vol. 131(C).
    9. Blaise Gnimassoun, 2020. "Regional Integration: Do Intra-African Trade and Migration Improve Income in Africa?," International Regional Science Review, , vol. 43(6), pages 587-631, November.
    10. Aneesha Chitgupi, 2019. "Macroeconomic determinants of software services exports and impact on external stabilisation for India: An empirical analysis," Working Papers 432, Institute for Social and Economic Change, Bangalore.
    11. Steinberg, Joseph B., 2019. "Brexit and the macroeconomic impact of trade policy uncertainty," Journal of International Economics, Elsevier, vol. 117(C), pages 175-195.
    12. Daqing Yao & John Whalley, 2016. "Global Service Efficiency and the Role of Special and Differential Based Negotiation," NBER Working Papers 22362, National Bureau of Economic Research, Inc.
    13. French, Scott, 2017. "Revealed comparative advantage: What is it good for?," Journal of International Economics, Elsevier, vol. 106(C), pages 83-103.
    14. Ricardo Reyes-Heroles, 2017. "The Role of Trade Costs in the Surge of Trade Imbalances," 2017 Meeting Papers 212, Society for Economic Dynamics.
    15. Fiorentini, Riccardo, 2020. "The Persisting US Trade Deficit: Is Protectionistm the Right Answer?," Economia Internazionale / International Economics, Camera di Commercio Industria Artigianato Agricoltura di Genova, vol. 73(2), pages 155-186.
    16. Alessandria, George & Choi, Horag, 2021. "The dynamics of the U.S. trade balance and real exchange rate: The J curve and trade costs?," Journal of International Economics, Elsevier, vol. 132(C).
    17. Sena Kimm Gnangnon, 2019. "Remittances Inflows and Trade Policy," Remittances Review, Transnational Press London, UK, vol. 4(2), pages 117-142, October.
    18. George Alessandria & Horag Choi & Dan Lu, 2017. "Trade Integration and the Trade Balance in China," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 65(3), pages 633-674, August.
    19. Dramane Coulibaly & Blaise Gnimassoun & Valérie Mignon, 2018. "The tale of two international phenomena: International migration and global imbalances," Working Papers 2018-02, CEPII research center.
    20. Yilmazkuday, Hakan, 2021. "Accounting for trade deficits," Journal of International Money and Finance, Elsevier, vol. 115(C).
    21. Leonor Coutinho & Alessandro Turrini & Stefan Zeugner, 2018. "Methodologies for the Assessment of Current Account Benchmarks," European Economy - Discussion Papers 2015 - 086, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
    22. Roman Stöllinger, 2020. "Tradability of output and the current account in Europe," International Economics and Economic Policy, Springer, vol. 17(1), pages 167-218, February.
    23. Ms. Emine Boz & Ms. Nan Li & Hongrui Zhang, 2019. "Effective Trade Costs and the Current Account: An Empirical Analysis," IMF Working Papers 2019/008, International Monetary Fund.
    24. Wenjing Zu & Guoda Gu & Sihan Lei, 2022. "Does Digital Transformation in Manufacturing Affect Trade Imbalances? Evidence from US–China Trade," Sustainability, MDPI, vol. 14(14), pages 1-14, July.

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    More about this item

    Keywords

    Comparative Advantage; Service Trade; Global Imbalances;
    All these keywords.

    JEL classification:

    • F1 - International Economics - - Trade
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F40 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - General

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