Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/212780 
Year of Publication: 
2013
Series/Report no.: 
BOFIT Discussion Papers No. 25/2013
Publisher: 
Bank of Finland, Institute for Economies in Transition (BOFIT), Helsinki
Abstract: 
In partial equilibrium, a reduction in import barriers may be thought to lead to an increase in imports and a reduction in trade surplus. However, the general equilibrium effect can go in the opposite direction. We study how trade reforms affect current accounts by embedding a modified Heckscher-Ohlin structure and an endogenous discount factor into an intertemporal model of current account. We show that trade liberalizations in a developing country would generally lead to capital outflow. In contrast, trade liberalizations in a developed country would result in capital inflow. Thus, efficient trade reforms can contribute to global current account imbalances, but these imbalances do not need policy "corrections".
JEL: 
F3
F4
Persistent Identifier of the first edition: 
ISBN: 
978-952-6699-37-0
Document Type: 
Working Paper

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