Working Paper: CEPR ID: DP15805
Authors: Jungho Lee; Shangjin Wei; Jianhuan Xu
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.
Keywords: Trade Surplus; Pollution; Transportation Cost
JEL Codes: F18; F32
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| lower unit shipping costs (L87) | alter composition of imports (F14) |
| alter composition of imports (F14) | increase import of heavier goods (F10) |
| increase import of heavier goods (F10) | increase pollution (Q53) |
| trade surplus (F14) | increase pollution (Q53) |
| increase pollution (Q53) | welfare loss (D69) |
| trade surplus (F14) | welfare loss (D69) |
| trade surplus (F14) | lower unit shipping costs (L87) |