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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. Blaise Gnimassoun, 2018. "Regional Integration: Do intra-African trade and migration improve income in Africa?," EconomiX Working Papers 2018-9, University of Paris Nanterre, EconomiX.
    2. repec:eee:inecon:v:106:y:2017:i:c:p:83-103 is not listed on IDEAS
    3. Ricardo Reyes-Heroles, 2017. "The Role of Trade Costs in the Surge of Trade Imbalances," 2017 Meeting Papers 212, Society for Economic Dynamics.
    4. French, Scott, 2017. "Revealed comparative advantage: What is it good for?," Journal of International Economics, Elsevier, vol. 106(C), pages 83-103.
    5. repec:pal:imfecr:v:65:y:2017:i:3:d:10.1057_s41308-017-0036-2 is not listed on IDEAS
    6. 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.

    More about this item

    Keywords

    Comparative Advantage; Service Trade; Global Imbalances;

    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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