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Unbalanced Trade

  • Samuel Kortum

    (University of Chicago)

  • Jonathan Eaton

    (New York University)

  • Robert Dekle

    (Federal Reserve Bank of New York and University of Southern California)

We incorporate trade imbalances into a quantitative model of bilateral trade in manufactures, dividing the world into forty "countries." We calculate the pattern of bilateral trade and relative factor costs in a counterfactual world with all current accounts balancing. Our results indicate that closing the current accounts requires only modest changes in relative factor costs across countries. The extent of nontradability implied by the parameter estimates means that the implied changes in real factor returns are negligible. The geographic barriers implied by the current pattern of trade are sufficiently asymmetric that large bilateral deficits remain even after current accounts balance. The U.S. manufacturing trade deficit with China falls to only $65 billion from its current level of $167 billion.

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File URL: https://www.economicdynamics.org/meetpapers/2007/paper_921.pdf
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Paper provided by Society for Economic Dynamics in its series 2007 Meeting Papers with number 921.

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Date of creation: 2007
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Handle: RePEc:red:sed007:921
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  1. Andrew B. Bernard & Jonathan Eaton & J. Bradford Jenson & Samuel Kortum, 2000. "Plants and Productivity in International Trade," NBER Working Papers 7688, National Bureau of Economic Research, Inc.
  2. Stephen Redding & Anthony J. Venables, 2001. "Economic geography and international inequality," LSE Research Online Documents on Economics 3714, London School of Economics and Political Science, LSE Library.
  3. Jonathan Eaton & Samuel Kortum, 2002. "Technology, Geography, and Trade," Econometrica, Econometric Society, vol. 70(5), pages 1741-1779, September.
  4. Michael E. Waugh, 2010. "International Trade and Income Differences," American Economic Review, American Economic Association, vol. 100(5), pages 2093-2124, December.
  5. James E. Anderson & Eric van Wincoop, 2003. "Gravity with Gravitas: A Solution to the Border Puzzle," American Economic Review, American Economic Association, vol. 93(1), pages 170-192, March.
  6. Maurice Obstfeld & Kenneth S. Rogoff, 2005. "Global Current Account Imbalances and Exchange Rate Adjustments," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 36(1), pages 67-146.
  7. Dimitri B. Papadimitriou & Gennaro Zezza & Greg Hannsgen, 2006. "Can Global Imbalances Continue?: Policies for the U.S. Economy," Economics Strategic Analysis Archive sa_nov_06, Levy Economics Institute.
  8. Alvarez, Fernando & Lucas, Robert Jr., 2007. "General equilibrium analysis of the Eaton-Kortum model of international trade," Journal of Monetary Economics, Elsevier, vol. 54(6), pages 1726-1768, September.
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