[go: up one dir, main page]
IDEAS home Printed from https://ideas.repec.org/a/bla/reviec/v15y2007i5p916-931.html
   My bibliography  Save this article

A Model of Endogenous Nontradability and its Implications for the Current Account

Author

Listed:
  • Paul Bergin
  • Reuven Glick
Abstract
This paper studies how nontraded goods limit the ability of a country to finance current account deficits. It uses an intertemporal model of the current account for a small open economy where goods are endogenously nontraded due to explicit trade costs. The economy has an endowment of two goods with differing trade costs, either of which can be traded or nontraded in equilibrium. The model implies that current account deficits impose a cost, in the form of raising the effective interest rate in the country. The findings differ from some recent studies: first, in that the interest rate rises even for countries with modest current account deficits; secondly, the interest rate cost eventually reaches an upper bound as current account deficits grow, and progressively more nontraded goods become traded to service the debt. Panel regression analysis of interest rate and current account data is consistent with our conclusions.

Suggested Citation

  • Paul Bergin & Reuven Glick, 2007. "A Model of Endogenous Nontradability and its Implications for the Current Account," Review of International Economics, Wiley Blackwell, vol. 15(5), pages 916-931, November.
    • Handle: RePEc:bla:reviec:v:15:y:2007:i:5:p:916-931
    DOI: 10.1111/j.1467-9396.2007.00662.x
    as

    Download full text from publisher

    File URL: https://doi.org/10.1111/j.1467-9396.2007.00662.x
    Download Restriction: no
    File URL: https://libkey.io/10.1111/j.1467-9396.2007.00662.x?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Maurice Obstfeld & Kenneth Rogoff, 2001. "The Six Major Puzzles in International Macroeconomics: Is There a Common Cause?," NBER Chapters, in: NBER Macroeconomics Annual 2000, Volume 15, pages 339-412, National Bureau of Economic Research, Inc.
    2. Gordon, Roger H & Bovenberg, A Lans, 1996. "Why Is Capital So Immobile Internationally? Possible Explanations and Implications for Capital Income Taxation," American Economic Review, American Economic Association, vol. 86(5), pages 1057-1075, December.
    3. Backus, David K & Kehoe, Patrick J & Kydland, Finn E, 1992. "International Real Business Cycles," Journal of Political Economy, University of Chicago Press, vol. 100(4), pages 745-775, August.
    4. Andrew B. Bernard & J. Bradford Jensen, 2004. "Why Some Firms Export," The Review of Economics and Statistics, MIT Press, vol. 86(2), pages 561-569, May.
    5. Maurice Obstfeld & Kenneth S. Rogoff, 1996. "Foundations of International Macroeconomics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262150476, April.
    6. Dornbusch, Rudiger, 1983. "Real Interest Rates, Home Goods, and Optimal External Borrowing," Journal of Political Economy, University of Chicago Press, vol. 91(1), pages 141-153, February.
    7. Dumas, Bernard, 1992. "Dynamic Equilibrium and the Real Exchange Rate in a Spatially Separated World," The Review of Financial Studies, Society for Financial Studies, vol. 5(2), pages 153-180.
    8. Sercu, Piet & Uppal, Raman & Van Hulle, Cynthia, 1995. "The Exchange Rate in the Presence of Transaction Costs: Implications for Tests of Purchasing Power Parity," Journal of Finance, American Finance Association, vol. 50(4), pages 1309-1319, September.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Fabio Ghironi & Marc J. Melitz, 2005. "International Trade and Macroeconomic Dynamics with Heterogeneous Firms," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 120(3), pages 865-915.
    2. Giorgio Fazio & Ronald MacDonald & Jacques Melitz, 2008. "Trade Costs, Trade Balances and Current Accounts: An Application of Gravity to Multilateral Trade," Open Economies Review, Springer, vol. 19(5), pages 557-578, November.
    3. Cavallari, Lilia & Romano, Simone & Naticchioni, Paolo, 2021. "The original sin: Firms’ dynamics and the life-cycle consequences of economic conditions at birth," European Economic Review, Elsevier, vol. 138(C).
    4. Manoj Atolia, 2019. "Trade Costs and Endogenous Nontradability in a Model with Sectoral and Firm-Level Heterogeneity," Computational Economics, Springer;Society for Computational Economics, vol. 53(2), pages 709-742, February.
    5. Cavallari, Lilia & D'Addona, Stefano, 2013. "Trade margins and exchange rate regimes: new evidence from a panel VAR," MPRA Paper 51585, University Library of Munich, Germany.
    6. Cavallari, Lilia, 2010. "Exports and foreign direct investments in an endogenous-entry model with real and nominal uncertainty," Journal of Macroeconomics, Elsevier, vol. 32(1), pages 300-313, March.
    7. Cavallari, Lilia & D'Addona, Stefano, 2017. "Output stabilization in fixed and floating regimes: Does trade of new products matter?," Economic Modelling, Elsevier, vol. 64(C), pages 365-383.
    8. Lilia Cavallari & Stefano D’Addona, 2014. "Trade Margins And Exchange Rate Regimes: New Evidence From A Panel Varx Model," Working Papers 0514, CREI Università degli Studi Roma Tre, revised 2014.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Fabio Ghironi & Marc J. Melitz, 2005. "International Trade and Macroeconomic Dynamics with Heterogeneous Firms," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 120(3), pages 865-915.
    2. Maurice Obstfeld & Kenneth Rogoff, 2001. "The Six Major Puzzles in International Macroeconomics: Is There a Common Cause?," NBER Chapters, in: NBER Macroeconomics Annual 2000, Volume 15, pages 339-412, National Bureau of Economic Research, Inc.
    3. Tarlok Singh, 2007. "Intertemporal Optimizing Models Of Trade And Current Account Balance: A Survey," Journal of Economic Surveys, Wiley Blackwell, vol. 21(1), pages 25-64, February.
    4. Paul De Grauwe & Isabel Vansteenkiste, 2014. "Exchange Rates and Fundamentals: A Non-Linear Relationship?," World Scientific Book Chapters, in: Exchange Rates and Global Financial Policies, chapter 5, pages 159-187, World Scientific Publishing Co. Pte. Ltd..
    5. Vadym Volosovych, 2013. "Risk sharing from international factor income: explaining cross-country differences," Applied Economics, Taylor & Francis Journals, vol. 45(11), pages 1435-1459, April.
    6. Etro, Federico, 2017. "Research in economics and macroeconomics," Research in Economics, Elsevier, vol. 71(3), pages 373-383.
    7. Georg H. Strasser, 2010. "The Efficiency of the Global Markets for Final Goods and Productive Capabilities," Boston College Working Papers in Economics 766, Boston College Department of Economics, revised 31 Jan 2012.
    8. Hau, Harald, 2002. "Real Exchange Rate Volatility and Economic Openness: Theory and Evidence," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 34(3), pages 611-630, August.
    9. Basak, Suleyman & Croitoru, Benjamin, 2007. "International good market segmentation and financial innovation," Journal of International Economics, Elsevier, vol. 71(2), pages 267-293, April.
    10. Duarte, Margarida & Stockman, Alan C., 2005. "Rational speculation and exchange rates," Journal of Monetary Economics, Elsevier, vol. 52(1), pages 3-29, January.
    11. Christophe Chamley, 2006. "Complementarities in information acquisition with short-term trades," Boston University - Department of Economics - Working Papers Series WP2006-042, Boston University - Department of Economics.
    12. Fernando Pérez de Gracia & Juncal Cuñado, "undated". "Intertemporal Current Account and Productivity Shocks: Evidence for Some European Countries," Working Papers on International Economics and Finance 01-05, FEDEA.
    13. Anton Schautzer, 2005. "Albania: Country Profile and Recent Economic Developments," Focus on European Economic Integration, Oesterreichische Nationalbank (Austrian Central Bank), issue 1, pages 107-126.
    14. Romain Restout, 2008. "Monopolistic Competition and the Dependent Economy Model," EconomiX Working Papers 2008-9, University of Paris Nanterre, EconomiX.
    15. Martin, Philippe & Rey, Helene, 2004. "Financial super-markets: size matters for asset trade," Journal of International Economics, Elsevier, vol. 64(2), pages 335-361, December.
    16. Hassan, Ramin & Loualiche, Erik & Pecora, Alexandre R. & Ward, Colin, 2023. "International trade and the risk in bilateral exchange rates," Journal of Financial Economics, Elsevier, vol. 150(2).
    17. Eaton, Jonathan & Kortum, Samuel & Neiman, Brent, 2016. "Obstfeld and Rogoff׳s international macro puzzles: a quantitative assessment," Journal of Economic Dynamics and Control, Elsevier, vol. 72(C), pages 5-23.
    18. Taylor Mark P. & Sarno Lucio, 2001. "Real Exchange Rate Dynamics in Transition Economies: A Nonlinear Analysis," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 5(3), pages 1-26, October.
    19. Rodolphe Blavy & Luciana Juvenal, 2009. "Mexico's integration into NAFTA markets: a view from sectoral real exchange rates," Review, Federal Reserve Bank of St. Louis, vol. 91(Sep), pages 441-464.
    20. Mario Larch & Wolfgang Lechthaler, 2011. "Why ‘Buy American’ is a bad idea but politicians still like it," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 44(3), pages 838-858, August.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bla:reviec:v:15:y:2007:i:5:p:916-931. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: http://www.blackwellpublishing.com/journal.asp?ref=0965-7576 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.