The China-US co-dependency and the elusive costs of growth rebalancing

Luigi Bonatti () and Andrea Fracasso

No 1004, Department of Economics Working Papers from Department of Economics, University of Trento, Italia

Abstract: The global crisis burst in 2007 has revived the growth-rebalancing debate and backed the position of those advocating a fast reduction of the global imbalances centered on the symbiotic US-China relationship. In this work, we develop a two-country two-stage growth model reproducing the main features of the Sino-American co-dependency and we analyze alternative (medium- and long-term) scenarios for its evolution. We show that altering the Chinese exchange rate policy and down-sizing the US external deficits with a view to moving the production of tradables toward the US may imply some relevant costs. If exchange rate and fiscal policies are not properly tuned in both countries, the rebalancing process may lead to the emergence of structural unemployment in the US (due to the greater labor intensity of growth recorded in the nontradable sector than in the tradable sector) and to a slow-down in the process whereby the Chinese labor force is gradually absorbed in the modern sectors of the economy

Keywords: Growth-rebalancing; global imbalances; structural unemployment (search for similar items in EconPapers)
JEL-codes: E42 F33 F41 F43 O41 (search for similar items in EconPapers)
Date: 2010
New Economics Papers: this item is included in nep-dev and nep-mac
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:trn:utwpde:1004

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