Trade Reforms and Current Account Imbalances

Jiandong Ju, Kang Shi and Shang-Jin Wei

No 18653, NBER Working Papers from National Bureau of Economic Research, Inc

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.

JEL-codes: F2 F3 (search for similar items in EconPapers)
Date: 2012-12
New Economics Papers: this item is included in nep-opm
Note: IFM ITI
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Citations: View citations in EconPapers (17)

Published as Ju, Jiandong & Shi, Kang & Wei, Shang-Jin, 2021. "Trade reforms and current account imbalances," Journal of International Economics, Elsevier, vol. 131(C).

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