Trade reforms and current account imbalances
Kang Shi () and
No 25/2013, BOFIT Discussion Papers from Bank of Finland, Institute for Economies in Transition
In partial equilibrium, a reduction in import barriers may be thought to lead to an increase in imports and a reduction in trade surplus. However, the general equilibrium effect can go in the opposite direction. We study how trade reforms affect current accounts by embedding a modified Heckscher-Ohlin structure and an endogenous discount factor into an intertemporal model of current account. We show that trade liberalizations in a developing country would generally lead to capital outflow. In contrast, trade liberalizations in a developed country would result in capital inflow. Thus, efficient trade reforms can contribute to global current account imbalances, but these imbalances do not need policy "corrections". JEL Classification Numbers: F3 and F4
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Published in Published in Journal of International Economics, Volume 92, Supplement 1, April 2014, Pages S36–S51 as On the connections between intra-temporal and intertemporal trades
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Persistent link: https://EconPapers.repec.org/RePEc:bof:bofitp:2013_025
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