Jonathan Eaton and
Robert Dekle ()
No 921, 2007 Meeting Papers from Society for Economic Dynamics
We incorporate trade imbalances into a quantitative model of bilateral trade in manufactures, dividing the world into forty "countries." We calculate the pattern of bilateral trade and relative factor costs in a counterfactual world with all current accounts balancing. Our results indicate that closing the current accounts requires only modest changes in relative factor costs across countries. The extent of nontradability implied by the parameter estimates means that the implied changes in real factor returns are negligible. The geographic barriers implied by the current pattern of trade are sufficiently asymmetric that large bilateral deficits remain even after current accounts balance. The U.S. manufacturing trade deficit with China falls to only $65 billion from its current level of $167 billion.
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Journal Article: Unbalanced Trade (2007)
Working Paper: Unbalanced Trade (2007)
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Persistent link: https://EconPapers.repec.org/RePEc:red:sed007:921
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More papers in 2007 Meeting Papers from Society for Economic Dynamics Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA. Contact information at EDIRC.
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