Global Imbalances, Productivity Differentials and Financial Integration

45 Pages Posted: 12 Nov 2007

See all articles by Suparna Chakraborty

Suparna Chakraborty

University of San Francisco

Robert Dekle

University of Southern California - Department of Economics

Date Written: 10/22/07

Abstract

An influential explanation for the recent rise in the U.S. current account deficit is the boom in U.S. productivity. As U.S. productivity surged, capital was attracted to the U.S. to take advantage of the higher real returns. Using a two country general equilibrium model, this paper quantitatively shows that the gap in productivity growth between the U.S. and the rest of the world cannot explain the U.S. current account deficits, especially in the 1980s and the 2000s. This is because on a GDP- weighted basis, the rest of the world actually had higher productivity growth during these periods, and standard macroeconomic models would predict an outflow of funds from the U.S. to the rest of the world, and a consequent U.S. current account surplus. We show that changes in the degree of global financial integration can help explain this anomaly in U.S. current account behavior.

Keywords: Current account deficit, productivity, financial integration

JEL Classification: F32, F34, F36

Suggested Citation

Chakraborty, Suparna and Dekle, Robert, Global Imbalances, Productivity Differentials and Financial Integration (10/22/07). IEPR Working Paper No. 07.14. Available at SSRN: https://ssrn.com/abstract=1028953 or http://dx.doi.org/10.2139/ssrn.1028953

Suparna Chakraborty (Contact Author)

University of San Francisco ( email )

2130 Fulton Street
San Francisco, CA 94117-1080
United States

HOME PAGE: http://chakrabortys.weebly.com

Robert Dekle

University of Southern California - Department of Economics ( email )

3620 South Vermont Ave. Kaprielian (KAP) Hall, 300
Los Angeles, CA 90089
United States
213-740-8335 (Phone)

Register to save articles to
your library

Register

Paper statistics

Downloads
92
rank
274,904
Abstract Views
769
PlumX Metrics
!

Under construction: SSRN citations while be offline until July when we will launch a brand new and improved citations service, check here for more details.

For more information