Working Paper: CEPR ID: DP9293
Authors: Jiandong Ju; Kang Shi; Shangjin Wei
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
Keywords: No keywords provided
JEL Codes: F3; F4
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| trade liberalizations in developing countries (F63) | capital outflow (F21) |
| trade liberalizations in developed countries (F13) | capital inflow (F21) |
| capital outflow (F21) | current account deficits (F32) |
| trade liberalizations in developed countries (F13) | current account deficits (F32) |
| factor market frictions (G19) | current account response to trade reforms (F32) |
| trade reforms (F13) | current account dynamics (F32) |
| trade reforms (F13) | capital intensity (E22) |