David D. Shin

[Abstract]

I develop a dynamic general equilibrium model of the global economy with gradual and imperfect capital and labor reallocation, and show that imperfect factor mobility can cause clean energy subsidies to increase rather than decrease global emissions. In the calibrated model, unilateral permanent clean energy subsidies in China and the United States increase global emissions in the long run. This result arises because, under imperfect factor mobility, the output expansion through production linkages and capital accumulation outweighs the decline in emissions per unit of output. Directing model-implied clean energy subsidy expenditure toward capital maximizes domestic emission reductions but incurs the largest welfare costs, while directing it toward labor yields modest reductions and performs best on welfare.

[Paper] [Presentation]

Federal Reserve Bank of New York 2024; Federal Reserve Bank of St. Louis 2024; Duke University 2024; Economics Graduate Student Conference (WUSTL) 2024; Federal Reserve Board 2025; U.S. Government Accountability Office 2025; Penn Wharton Budget Model 2025; Korea Development Institute 2025; Korea Institute for International Economic Policy 2025; Korea Institute of Public Finance 2025; University of Tennessee, Knoxville 2025; World Congress 2025; Midwest International Trade & Theory Conference (Penn State) 2025; SEA Annual Meeting 2025

[Abstract]

This paper studies why some countries run persistent trade deficits while others run persistent trade surpluses. I develop a dynamic multi-country general equilibrium model in which borrowing and saving are decisions of heterogeneous households over the life cycle. Persistent trade imbalances arise naturally when countries differ in life-cycle profiles of income, investment, and bequest motives, and cohort replacement sustains aggregate borrowing and saving over time. Quantitatively, I show that life-cycle profiles play a central role in persistent trade imbalances across major advanced and emerging economies from 2000 to 2014. Other forces, including productivity growth, trade costs, financial frictions, and fiscal policy, play a smaller role in long-run persistence in most economies. A counterfactual exercise shows that China’s WTO accession lowered the U.S. trade balance by 0.054 percentage points of GDP on average, a modest effect relative to life-cycle forces.

[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; KATIS International Conference 2025; EIIT (UTennessee) 2025