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Macroeconomic Impacts of the US External Imbalances with Two Large Emerging Asian Economies: Japan (1970–1990) versus China (2000–2018)

Ying Wu () and Xin Deng ()
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Ying Wu: Salisbury University
Xin Deng: Hunan University of Technology and Businesses

Comparative Economic Studies, 2022, vol. 64, issue 2, No 4, 255-279

Abstract: Abstract This paper compares the US long-run macroeconomic effects of foreign direct investment from Japan (1970–1990) with foreign portfolio investment from China (2000–2018). Investment from the both countries lowers the US inflation rate, and the effect from Japan is stronger than that from China. While Japan’s investment in the 1970–1990 period accounts for 88% of the unemployment-reducing effect of the overall US financial account surplus, China’s investment in the 2000–2018 period explains 65% of the unemployment-deterioration effect as well as 96% of the inflation-reducing effect of the overall US financial account surplus. The US inflation and unemployment impulse responses exhibit the pertinent supportive evidence. Furthermore, in contrast to Japan’s direct investment, China’s portfolio investment is more sensitive to dollar depreciation, higher inflation rate and lower real interest rate in the USA.

Keywords: Current account deficit; Emerging economy; Foreign direct investment; Foreign portfolio investment; Inflation; Unemployment (search for similar items in EconPapers)
JEL-codes: E00 F10 F40 (search for similar items in EconPapers)
Date: 2022
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DOI: 10.1057/s41294-021-00158-z

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