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DECTI Trade Seminar: A Sexually Unbalanced Model of Current Account Imbalances

Sponsor: Development Economics and Chief Economist (DEC)

Speaker: Shang-Jin Wei, Columbia University

Abstract: Large current account surpluses by China and other countries are said to be a contributor to the global current account imbalances and possibly to the recent global financial crisis. This paper proposes a theory of excess savings based on a major, albeit insufficiently recognized, transformation in many of these societies, namely, a steady increase in the surplus of men relative to women. We construct an OLG model with two sexes and a desire to marry. We show conditions under which an intensified competition in the marriage market can induce men to raise their savings rate, and produce a rise in the aggregate savings and current account surplus. A calibration of the model suggests that this factor could generate economically significant current account responses, or about 1/2 of the actual current account imbalances observed in the data.

For Information: Yasmin D Souza

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