Unbalanced Trade

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.

A “New Trade” Theory of GATT/WTO Negotiations

“…19 X j Denoting the counterfactual value of by and counterfactual changes t t ij ij in by and so forth, one can easily verify using t t { (1 ϩ t )/(1 ϩ t ) ij ij ij ij the technique of Dekle et al (2007) that equations (12)- (14) can be rewritten in changes as…”

“…of the world (ROW). 21 I construct the matrix of trade flows exactly as in Dekle et al (2007) and also work with their parameter estimates and or, alternatively, . 22 I construct the m p 0.188 j p 9.28 j p 4.60 matrix of tariffs by taking simple averages over the applied manufacturing protection rates reported by Boumellassa, Laborde, and Mitaritonna (2009).…”

Goods Trade, Factor Mobility and Welfare

“…Using land market clearing (11), the equality of income and expenditure (9) and the price index (8), the above population mobility condition can be used to solve for the equilibrium population of each location as a function of locational fundamentals (productivity (T n ) and land quality (H n )), the location's trade share with itself (π nn ) and the common level of real income (V):…”

Do Borders Really Slash Trade? A Meta-Analysis

“…We approximate the general equilibrium effect using our estimate of the partial equilibrium effect and the approach based on exact hat algebra (Dekle et al, 2007) described in Head & Mayer (2014, pp. 167-170, who also provide a Stata code for the computation).…”