Working Paper: NBER ID: w0791
Authors: William H. Branson
Abstract: This paper explores the connections between the shift of world saving toward OPEC and the changing structure of U.S. trade with the non-oil developing countries. The basic point of the paper is that during the 1970s the U.S. economy has become more interdependent through trade with the newly industrializing countries (NICs) in the developing world. The shift of world saving toward OPEC in the 1970s effectively internationalized the supply of saving, as OPEC places its surplus in the international financial system. The NICs and other developing countries borrow the surplus and direct it to domestic investment. Investment in the NICs stimulates the demand for U.S. capital goods. The reallocation of resources towards capital goods production in the U.S. stimulates excess demand for consumer goods, which appear as imports from the NICs. U.S. exports of capital goods to these countries have grown rapidly in the 1970s as have U.S. imports of non-food, non-auto consumer goods from them. Thus the structure of U.S. trade has been reoriented to become complementary with the rapidly- growing developing countries, and perhaps more competitive with Europe and Japan.
Keywords: OPEC; US Trade; Developing Countries; Capital Goods; International Trade
JEL Codes: F21; F32
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| OPEC surplus (Q38) | developing countries borrow (F34) |
| developing countries borrow (F34) | domestic investments (F21) |
| domestic investments (F21) | demand for US capital goods (E22) |
| demand for US capital goods (E22) | US exports of capital goods (F10) |
| reallocation of US resources towards capital goods production (H56) | excess demand for consumer goods (D12) |
| excess demand for consumer goods (D12) | imports from developing countries (O19) |