the Rise of Creditor Nations

Konstantin Kucheryavyy, Alexander Monge-Naranjo and Kenichi Ueda
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Konstantin Kucheryavyy: CUNY Baruch College
Alexander Monge-Naranjo: FRB Atlanta, Emory University, and CEPR
Kenichi Ueda: The University of Tokyo, CEPR and TCER

No CARF-F-628, CARF F-Series from Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo

Abstract: Major industrialization episodes—from nineteenth-century Britain to Germany, the United States, Japan, Korea, and China—were followed by persistent current account surpluses and large accumulations of external wealth, a pattern at odds with standard current-account models. We develop a model of the transition dynamics of an emerging economy that explains this behavior. Two financial frictions are central: a gold-in-advance constraint requiring hard-currency settlement of debt service and consumption imports, and a pledgeability constraint linking foreign borrowing to capital-goods imports. These frictions generate an endogenous transition from net debtor to persistent net creditor during industrialization. Doing so, the framework resolves the Lucas Paradox and reproduces the falling-then-rising external-wealth dynamics observed across industrialization episodes since 1845, which are key for understanding the observed global imbalances.

Pages: 25
Date: 2026-06
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Persistent link: https://EconPapers.repec.org/RePEc:cfi:fseres:cf628

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