Trade Reforms and Current Account Imbalances

Shang-Jin Wei, Jiandong Ju and Kang Shi

No 15806, CEPR Discussion Papers from C.E.P.R. Discussion Papers

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 its current account surplus.

Keywords: Trade reforms; Trade surplus; Wto accession; China (search for similar items in EconPapers)
JEL-codes: F13 F32 (search for similar items in EconPapers)
Date: 2021-02
New Economics Papers: this item is included in nep-int
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Citations: View citations in EconPapers (3)

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Related works:
Journal Article: Trade reforms and current account imbalances (2021)
Working Paper: Trade Reforms and Current Account Imbalances (2012)
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