Unbalanced Trade

Robert Dekle (), Jonathan Eaton and Samuel Kortum

No 13035, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We incorporate trade imbalances into a quantitative model of bilateral trade in manufactures, dividing the world into forty countries. Fitting the model to 2004 data on GDP and bilateral trade we calculate how relative wages, real wages, and welfare would differ in a counterfactual world with all current accounts balancing. Our results indicate that closing the current accounts requires modest changes in relative wages. The country with the largest deficit (the United States) needs its wage to fall by around 10 percent relative to the country with the largest surplus (Japan). But the prevalence of nontraded goods means that the real wage in Japan barely rises while the U.S. real wage falls by less than 1 percent. 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 $65 billion from its 2004 level of $167 billion.

JEL-codes: F17 F32 F41 (search for similar items in EconPapers)
Date: 2007-04
New Economics Papers: this item is included in nep-cba and nep-int
Note: IFM ITI PR
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Citations: View citations in EconPapers (68)

Published as Robert Dekle & Jonathan Eaton & Samuel Kortum, 2007. "Unbalanced Trade," American Economic Review, American Economic Association, vol. 97(2), pages 351-355, May.

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Journal Article: Unbalanced Trade (2007)
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