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The Welfare Cost of a Current Account Imbalance: A 'Clean' Channel

Author

Listed:
  • Wei, Shang-Jin
  • Lee, Jungho
  • Xu, Jianhuan
Abstract
A current account surplus is associated with a welfare loss, according to the existing open-economy macroeconomics literature, only when there are distortions in either savings or investment. We propose a new source of welfare loss even in the absence of such distortions. In particular, a trade surplus, the largest component of a current account surplus for most countries, can alter the shipping costs and the composition of a country's imports and exports in ways that tend to raise the pollution level of the country. Thus, when its pollution tax is low, a trade surplus can produce a welfare loss outside the standard channels.

Suggested Citation

  • Wei, Shang-Jin & Lee, Jungho & Xu, Jianhuan, 2021. "The Welfare Cost of a Current Account Imbalance: A 'Clean' Channel," CEPR Discussion Papers 15805, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:15805
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    References listed on IDEAS

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    More about this item

    Keywords

    Trade surplus; Pollution; And transportation cost;
    All these keywords.

    JEL classification:

    • F18 - International Economics - - Trade - - - Trade and Environment
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements

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