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DECTI Trade Seminar: Are Trade Liberalizations a Source of Global Current Account Imbalances?

Sponsor: Development Economics and Chief Economist (DEC)

Speaker: Shang-Jin Wei, Columbia University joint with Jiandong Ju and Kang Shi

Abstract: A wave of trade liberalizations have accelerated in both developing and developed countries in the last two decades. Global capital flows and the so-called global imbalances have also risen to an unprecedented level. Are the two developments related? In an intertemporal model with multiple tradable sectors, we show that trade liberalizations in a developing country would typically lead to capital outflow. In contrast, trade liberalizations in a developed country would result in capital inflow. Thus, (potentially efficiency-enhancing) trade reforms could generate global imbalances. The magnitude of the current account imbalance depends in part on whether trade reforms are accompanied by financial reforms.

For Information: Anna Regina Rillo Bonfield

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