Trade reforms and current account imbalances

Jiandong Ju, Kang Shi and Shang-Jin Wei

Journal of International Economics, 2021, vol. 131, issue C

Abstract: This paper studies the effects of trade liberalization on capital flows in a dynamic Heckscher-Ohlin model and makes four contributions. First, we identify an interest rate over-determination problem in such a model, and solve it with an endogenous discount factor. Second, we show that a trade liberalization in a developing country generally leads to a greater current account surplus, which is the exact opposite of a common but partial equilibrium intuition. Third, factor market reforms reinforce the effect of the trade liberalization on capital outflows. Finally, our calibrations suggest that China's accession to the WTO is likely an important factor driving the rise of current account surplus during 2001–2010.

Keywords: Current account; Trade liberalization (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (2)

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Related works:
Working Paper: Trade Reforms and Current Account Imbalances (2021)
Working Paper: Trade Reforms and Current Account Imbalances (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:inecon:v:131:y:2021:i:c:s0022199621000283

DOI: 10.1016/j.jinteco.2021.103451

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