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.