Transpacific trade imbalances: Causes and cures

Jong-Wha Lee, Warwick J. McKibbin, Yung Chul Park

Research output: Contribution to journalArticle

15 Citations (Scopus)

Abstract

This paper explores the causes of the transpacific trade imbalances using an empirical global model. It also evaluates the impact of various policies to reduce these imbalances. We find the fundamental cause of trade imbalance since 1997 is changes in saving-investment gaps, attributed to the surge of the US fiscal deficits and the decline of East Asia's private investment after the 1997 financial crisis. Our simulation results show that a revaluation of East Asia's exchange rates by 10 per cent (effectively a shift in monetary policy) cannot resolve the imbalances. We find East Asia's concerted efforts to stimulate aggregate demand can have significant impacts on trade balances globally, but the impact on the US trade balance is not large. US fiscal contraction is estimated to have large impacts on the US trade position overall and on the bilateral trade balances with East Asian economies. These results suggest that in order to improve the transpacific imbalance, macroeconomic adjustment will need to be made on both sides of the Pacific.

Original languageEnglish
Pages (from-to)281-303
Number of pages23
JournalWorld Economy
Volume29
Issue number3
DOIs
Publication statusPublished - 2006 Mar 1

Fingerprint

trade balance
cause
revaluation
private investment
monetary policy
financial crisis
macroeconomics
deficit
Trade imbalances
simulation
economy
demand
Trade balance
East Asia
Imbalance

ASJC Scopus subject areas

  • Accounting
  • Economics and Econometrics
  • Finance
  • Social Sciences(all)
  • Political Science and International Relations

Cite this

Transpacific trade imbalances : Causes and cures. / Lee, Jong-Wha; McKibbin, Warwick J.; Park, Yung Chul.

In: World Economy, Vol. 29, No. 3, 01.03.2006, p. 281-303.

Research output: Contribution to journalArticle

Lee, Jong-Wha ; McKibbin, Warwick J. ; Park, Yung Chul. / Transpacific trade imbalances : Causes and cures. In: World Economy. 2006 ; Vol. 29, No. 3. pp. 281-303.
@article{61d8e554b1cc408098ba7ba95d8590b3,
title = "Transpacific trade imbalances: Causes and cures",
abstract = "This paper explores the causes of the transpacific trade imbalances using an empirical global model. It also evaluates the impact of various policies to reduce these imbalances. We find the fundamental cause of trade imbalance since 1997 is changes in saving-investment gaps, attributed to the surge of the US fiscal deficits and the decline of East Asia's private investment after the 1997 financial crisis. Our simulation results show that a revaluation of East Asia's exchange rates by 10 per cent (effectively a shift in monetary policy) cannot resolve the imbalances. We find East Asia's concerted efforts to stimulate aggregate demand can have significant impacts on trade balances globally, but the impact on the US trade balance is not large. US fiscal contraction is estimated to have large impacts on the US trade position overall and on the bilateral trade balances with East Asian economies. These results suggest that in order to improve the transpacific imbalance, macroeconomic adjustment will need to be made on both sides of the Pacific.",
author = "Jong-Wha Lee and McKibbin, {Warwick J.} and Park, {Yung Chul}",
year = "2006",
month = "3",
day = "1",
doi = "10.1111/j.1467-9701.2006.00783.x",
language = "English",
volume = "29",
pages = "281--303",
journal = "World Economy",
issn = "0378-5920",
publisher = "Wiley-Blackwell",
number = "3",

}

TY - JOUR

T1 - Transpacific trade imbalances

T2 - Causes and cures

AU - Lee, Jong-Wha

AU - McKibbin, Warwick J.

AU - Park, Yung Chul

PY - 2006/3/1

Y1 - 2006/3/1

N2 - This paper explores the causes of the transpacific trade imbalances using an empirical global model. It also evaluates the impact of various policies to reduce these imbalances. We find the fundamental cause of trade imbalance since 1997 is changes in saving-investment gaps, attributed to the surge of the US fiscal deficits and the decline of East Asia's private investment after the 1997 financial crisis. Our simulation results show that a revaluation of East Asia's exchange rates by 10 per cent (effectively a shift in monetary policy) cannot resolve the imbalances. We find East Asia's concerted efforts to stimulate aggregate demand can have significant impacts on trade balances globally, but the impact on the US trade balance is not large. US fiscal contraction is estimated to have large impacts on the US trade position overall and on the bilateral trade balances with East Asian economies. These results suggest that in order to improve the transpacific imbalance, macroeconomic adjustment will need to be made on both sides of the Pacific.

AB - This paper explores the causes of the transpacific trade imbalances using an empirical global model. It also evaluates the impact of various policies to reduce these imbalances. We find the fundamental cause of trade imbalance since 1997 is changes in saving-investment gaps, attributed to the surge of the US fiscal deficits and the decline of East Asia's private investment after the 1997 financial crisis. Our simulation results show that a revaluation of East Asia's exchange rates by 10 per cent (effectively a shift in monetary policy) cannot resolve the imbalances. We find East Asia's concerted efforts to stimulate aggregate demand can have significant impacts on trade balances globally, but the impact on the US trade balance is not large. US fiscal contraction is estimated to have large impacts on the US trade position overall and on the bilateral trade balances with East Asian economies. These results suggest that in order to improve the transpacific imbalance, macroeconomic adjustment will need to be made on both sides of the Pacific.

UR - http://www.scopus.com/inward/record.url?scp=33645993273&partnerID=8YFLogxK

UR - http://www.scopus.com/inward/citedby.url?scp=33645993273&partnerID=8YFLogxK

U2 - 10.1111/j.1467-9701.2006.00783.x

DO - 10.1111/j.1467-9701.2006.00783.x

M3 - Article

AN - SCOPUS:33645993273

VL - 29

SP - 281

EP - 303

JO - World Economy

JF - World Economy

SN - 0378-5920

IS - 3

ER -