[go: up one dir, main page]
IDEAS home Printed from https://ideas.repec.org/p/zbw/bofitp/bdp2013_025.html
   My bibliography  Save this paper

Trade reforms and current account imbalances

Author

Listed:
  • Ju, Jiangdong
  • Shi, Kang
  • Wei, Shang-Jin
Abstract
In partial equilibrium, a reduction in import barriers may be thought to lead to an increase in imports and a reduction in trade surplus. However, the general equilibrium effect can go in the opposite direction. We study how trade reforms affect current accounts by embedding a modified Heckscher-Ohlin structure and an endogenous discount factor into an intertemporal model of current account. We show that trade liberalizations in a developing country would generally lead to capital outflow. In contrast, trade liberalizations in a developed country would result in capital inflow. Thus, efficient trade reforms can contribute to global current account imbalances, but these imbalances do not need policy "corrections".

Suggested Citation

  • Ju, Jiangdong & Shi, Kang & Wei, Shang-Jin, 2013. "Trade reforms and current account imbalances," BOFIT Discussion Papers 25/2013, Bank of Finland Institute for Emerging Economies (BOFIT).
    • Handle: RePEc:zbw:bofitp:bdp2013_025
    as

    Download full text from publisher

    File URL: https://www.econstor.eu/bitstream/10419/212780/1/bofit-dp2013-025.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Pol Antràs & Ricardo J. Caballero, 2009. "Trade and Capital Flows: A Financial Frictions Perspective," Journal of Political Economy, University of Chicago Press, vol. 117(4), pages 701-744, August.
    2. Jiandong Ju & Kang Shi & Shang-Jin Wei, 2011. "On the Connections between Intertemporal and Intra-temporal Trades," NBER Working Papers 17549, National Bureau of Economic Research, Inc.
    3. Schmitt-Grohe, Stephanie & Uribe, Martin, 2003. "Closing small open economy models," Journal of International Economics, Elsevier, vol. 61(1), pages 163-185, October.
    4. Maurice Obstfeld, 1982. "Aggregate Spending and the Terms of Trade: Is There a Laursen-Metzler Effect?," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 97(2), pages 251-270.
    5. Neumeyer, Pablo A. & Perri, Fabrizio, 2005. "Business cycles in emerging economies: the role of interest rates," Journal of Monetary Economics, Elsevier, vol. 52(2), pages 345-380, March.
    6. Choi, Horag & Mark, Nelson C. & Sul, Donggyu, 2008. "Endogenous discounting, the world saving glut and the U.S. current account," Journal of International Economics, Elsevier, vol. 75(1), pages 30-53, May.
    7. Shang-Jin Wei & Xiaobo Zhang, 2011. "The Competitive Saving Motive: Evidence from Rising Sex Ratios and Savings Rates in China," Journal of Political Economy, University of Chicago Press, vol. 119(3), pages 511-564.
    8. Jiandong Ju & Shang-Jin Wei, 2007. "Current Account Adjustment: Some New Theory and Evidence," NBER Working Papers 13388, National Bureau of Economic Research, Inc.
    9. Chong-En Bai & Chang-Tai Hsieh & Yingyi Qian, 2006. "The Return to Capital in China," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 37(2), pages 61-102.
    10. Schmitt-Grohe, Stephanie, 1998. "The international transmission of economic fluctuations:: Effects of U.S. business cycles on the Canadian economy," Journal of International Economics, Elsevier, vol. 44(2), pages 257-287, April.
    11. Devereux, Michael B. & Min Lee, Khang, 1999. "Endogenous trade policy and the gains from international financial markets," Journal of Monetary Economics, Elsevier, vol. 43(1), pages 35-59, February.
    12. Stiglitz, Joseph E, 1970. "Factor Price Equalization in a Dynamic Economy," Journal of Political Economy, University of Chicago Press, vol. 78(3), pages 456-488, May-June.
    13. Jiandong Ju & Yi Wu & Li Zeng, 2010. "The Impact of Trade Liberalization on the Trade Balance in Developing Countries," IMF Staff Papers, Palgrave Macmillan, vol. 57(2), pages 427-449, June.
    14. Mendoza, Enrique G, 1991. "Real Business Cycles in a Small Open Economy," American Economic Review, American Economic Association, vol. 81(4), pages 797-818, September.
    Full references (including those not matched with items on IDEAS)

    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. Ju, Jiandong & Shi, Kang & Wei, Shang-Jin, 2021. "Trade reforms and current account imbalances," Journal of International Economics, Elsevier, vol. 131(C).
    2. Wei, Shang-Jin & Shi, Kang & Ju, Jiandong, 2013. "Trade Reforms and Current Account Imbalances: When Does the General Equilibrium Effect Overturn a Partial Equilibrium Intuition," CEPR Discussion Papers 9293, C.E.P.R. Discussion Papers.
    3. Ju, Jiandong & Shi, Kang & Wei, Shang-Jin, 2021. "Trade reforms and current account imbalances," Journal of International Economics, Elsevier, vol. 131(C).
    4. repec:zbw:bofitp:2013_025 is not listed on IDEAS
    5. Ju, Jiandong & Lin, Justin Yifu & Liu, Qing & Shi, Kang, 2020. "Structural changes and the real exchange rate dynamics," Journal of International Money and Finance, Elsevier, vol. 107(C).
    6. Jiandong Ju & Kang Shi & Shang-Jin Wei, 2011. "On the Connections between Intertemporal and Intra-temporal Trades," NBER Working Papers 17549, National Bureau of Economic Research, Inc.
    7. Özbilgin, H. Murat, 2010. "Financial market participation and the developing country business cycle," Journal of Development Economics, Elsevier, vol. 92(2), pages 125-137, July.
    8. Jiandong Ju & Kang Shi & Shang-Jin Wei, 2013. "On the Connections between Intra-temporal and Intertemporal Trades," NBER Chapters, in: NBER International Seminar on Macroeconomics 2013, pages 36-51, National Bureau of Economic Research, Inc.
    9. Petrella, Ivan & Di Pace, Federico & Juvenal, Luciana, 2020. "Terms-of-Trade Shocks are Not all Alike," CEPR Discussion Papers 14594, C.E.P.R. Discussion Papers.
    10. Yannick Kalantzis, 2015. "Financial Fragility in Small Open Economies: Firm Balance Sheets and the Sectoral Structure," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 82(3), pages 1194-1222.
    11. Choi, Horag & Mark, Nelson C. & Sul, Donggyu, 2008. "Endogenous discounting, the world saving glut and the U.S. current account," Journal of International Economics, Elsevier, vol. 75(1), pages 30-53, May.
    12. Chen, Kuan-Jen & Chu, Angus C. & Lai, Ching-Chong, 2018. "Home production and small open economy business cycles," Journal of Economic Dynamics and Control, Elsevier, vol. 95(C), pages 110-135.
    13. Asli Leblebicioglu & Kolver Hernandez, 2012. "The Transmission of US Shocks to Emerging Markets," 2012 Meeting Papers 316, Society for Economic Dynamics.
    14. Horag Choi & Nelson C. Mark, 2009. "Trending Current Accounts," NBER Working Papers 15244, National Bureau of Economic Research, Inc.
    15. Liu, Zheng & Spiegel, Mark M. & Zhang, Jingyi, 2023. "Capital flows and income inequality," Journal of International Economics, Elsevier, vol. 144(C).
    16. Michaud, Amanda & Rothert, Jacek, 2018. "Redistributive fiscal policies and business cycles in emerging economies," Journal of International Economics, Elsevier, vol. 112(C), pages 123-133.
    17. Huang, Kevin X.D. & Meng, Qinglai, 2007. "The Harberger-Laursen-Metzler effect under capital market imperfections," Journal of International Money and Finance, Elsevier, vol. 26(6), pages 1001-1015, October.
    18. Andrés Fernández & Ayşe İmrohoroğlu & Cesar E. Tamayo, 2019. "Saving Rates in Latin America: A Neoclassical Perspective," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 67(4), pages 791-823, December.
    19. Özge Akinci, 2021. "Financial Frictions and Macro‐Economic Fluctuations in Emerging Economies," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 53(6), pages 1267-1312, September.
    20. Andrés Fernández, 2010. "“Tropical” Real Business Cycles? A Bayesian Exploration," Revista ESPE - Ensayos Sobre Política Económica, Banco de la República, vol. 28(61), pages 60-105, August.
    21. Markus Kirchner & Malte Rieth, 2021. "Sovereign Default Risk, Macroeconomic Fluctuations and Monetary–Fiscal Stabilization," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 69(2), pages 391-426, June.

    More about this item

    JEL classification:

    • F3 - International Economics - - International Finance
    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance

    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:zbw:bofitp:bdp2013_025. 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: ZBW - Leibniz Information Centre for Economics (email available below). General contact details of provider: https://edirc.repec.org/data/bofitfi.html .

    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.