Working Paper: NBER ID: w13734
Authors: Joshua Aizenman; Yi Sun
Abstract: This paper evaluates the sustainability of large current account imbalances in the era when the Chinese GDP growth rate and current account/GDP exceed 10%. We investigate the size distribution and the durability of current account deficits during 1966-2005, and report the results of a simulation that relies on the adding-up property of global current account balances. Excluding the US, we find that size does matter: the length of current account deficit spells is negatively related to the relative size of the countries' GDP. We conclude that the continuation of the fast growth rate of China, while maintaining its large current account/GPD surpluses, would be constrained by the limited sustainability of the larger current account deficits/GDP of countries that grow at a much slower rate. Consequently, short of the emergence of a new "demander of last resort," the Chinese growth path would be challenged by its own success.
Keywords: current account imbalances; globalization; China; economic growth
JEL Codes: F15; F21; F32; F43
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| size of a country's GDP (O57) | duration of current account deficits (F32) |
| smaller countries (F55) | longer spells of current account deficits (F32) |
| larger countries (F55) | shorter spells of current account deficits (F32) |
| US economic position (F59) | sustainability of current account deficits (F32) |
| China's rapid growth and current account surpluses (F32) | increases in deficits from larger economies (H69) |