Endogenous Growth Models in Open Economies: A Possibility of Permanent Current Account Deficits

Taiji Harashima

International Trade from EconWPA

Abstract: The paper explores the impacts of heterogeneity in degree of relative risk aversion on the balance on current account in a two-country endogenous growth model. It concludes that, like the heterogeneity of demographic changes, the heterogeneity in degree of relative risk aversion generates persisting current account deficits. The deficit continues permanently, but its ratio to output stabilizes. With evidence that the degree of relative risk aversion in Japan is relatively higher than that in the U.S., there is a possibility that the persisting bilateral trade deficit of the U.S. with Japan is partially generated by this mechanism.

Keywords: Current account; Trade deficits; Capital flows; Endogenous growth; Risk aversion (search for similar items in EconPapers)
JEL-codes: F41 F21 F43 O40 E10 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dev, nep-int and nep-mac
Date: Written 2005-02-01
Note: Type of Document - pdf; pages: 43
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