Emine Boz, Nan Li, Hongrui Zhang, 28 February 2019

It is commonly observed that economies specialising in sectors, such as services, that face relatively high trade costs tend to run current account deficits, while those specialising in more easily tradable sectors tend to run surpluses. This column tests the causality of this observation by constructing a measure of effective trade costs. Results show that although higher effective exporting costs are associated with lower current account balances, the impact of those costs is quantitatively limited. The findings suggest that the contribution of trade costs to observed global imbalances has been modest.

Juan Marchetti, Michele Ruta, Robert Teh, 02 January 2013

Globally, large current account imbalances prevail. This column argues that they also continue to represent a systemic risk for the world economy. The WTO has a clear-cut role in the institutional effort to address these imbalances. However, this role has more to do with opening services and government procurement markets than with the often invoked trade sanctions in response to exchange rate misalignments.

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