Trade reforms and current account imbalances

Arbeitspapier

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 "corrections".

Object Details

• ISBN: 978-952-6699-37-0
• Language: Englisch

References and Relationships

• Bibliographic citation: Series: BOFIT Discussion Papers ; No. 25/2013

Classification and Topics

• Classification: Wirtschaft

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Ju, Jiangdong ; Shi, Kang ; Wei, Shang-Jin
• Event: Veröffentlichung
• (who): Bank of Finland, Institute for Economies in Transition (BOFIT)
• (where): Helsinki
• (when): 2013

Further information

• Handle: http://hdl.handle.net/10419/212780
• Last update: 10.03.2025, 11:41 AM CET