Globalization and the Sustainability of Large Current Account Imbalances: Size Matters*

Joshua Aizenman and Yi Sun

Santa Cruz Department of Economics, Working Paper Series from Department of Economics, UC Santa Cruz

Abstract: This paper evaluates the sustainability of large current account imbalances in the era when the Chinese GDP growth rate and current account/GDP exceed 10%. We investigate the size distribution and the durability of current account deficits during 1966-2005, and report the results of a simulation that relies on the adding-up property of global current account balances. Excluding the US, we find that size does matter: the length of current account deficit spells is negatively related to the relative size of the countries’ GDP. We conclude that the continuation of the fast growth rate of China, while maintaining its large current account/GPD surpluses, would be constrained by the limited sustainability of the larger current account deficits/GDP of courtiers that grow at a much slower rate. Consequently, short of the emergence of a “new demander of last resort,” the Chinese growth path would be challenged by its own success.

Keywords: current account imbalances; growth; size; adding-up property; Social and Behavioral Sciences (search for similar items in EconPapers)
Date: 2009-11-01
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Related works:
Journal Article: Globalization and the sustainability of large current account imbalances: Size matters (2010)
Working Paper: Globalization and the Sustainability of Large Current Account Imbalances: Size Matters (2008)
Working Paper: Globalization and the Sustainability of Large Current Account Imbalances: Size Matters (2008)
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