David D. Shin

[Abstract]

This paper evaluates the drivers of persistent trade imbalances in eight advanced and emerging economies from 2000 to 2014. Using a dynamic general equilibrium framework, this paper rationalizes the observed trade imbalances as resulting from six forces commonly discussed in the literature: (i) productivity growth, (ii) trade costs, (iii) financial frictions, (iv) life expectancy, (v) population growth, and (vi) economy-specific intertemporal distortions. I find that economy-specific intertemporal distortions, particularly those associated with the United States, remain the most significant driver of global imbalances. Additionally, changes in trade costs between China and its trading partners— the China shock— substantially influenced the trade imbalances of both China and the United States. The findings suggest that, in the absence of the China shock, the United States would have maintained persistent trade surpluses, while China would have experienced persistent trade deficits, underscoring the importance of incorporating bilateral trade frictions in understanding global trade imbalances.

[Paper]

Presentation: Duke University 2023; Federal Reserve Bank of Richmond 2023; International Monetary Fund 2023; Economics Graduate Student Conference (WUSTL) 2023; Midwest International Trade & Theory Conference (Georgia Tech) 2023; Mid-Atlantic International Trade Workshop (Federal Reserve Board) 2024