Can International Productivity Differences Alone Account for the US Current Account Deficits?

27 Pages Posted: 15 Oct 2009

See all articles by Suparna Chakraborty

Suparna Chakraborty

University of San Francisco

Robert Dekle

University of Southern California - Department of Economics

Abstract

An influential explanation for the recent rise in the US current account deficit is the boom in US productivity. As US productivity surged in the mid-1990s, capital was attracted to the US 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 US and the “rest of the world” cannot explain the US 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 US to the rest of the world, and a consequent US current account surplus. We show that changes in global financial integration can help explain this anomaly in US current account behavior.

Suggested Citation

Chakraborty, Suparna and Dekle, Robert, Can International Productivity Differences Alone Account for the US Current Account Deficits?. Review of International Economics, Vol. 17, Issue 4, pp. 689-715, September 2009. Available at SSRN: https://ssrn.com/abstract=1489033 or http://dx.doi.org/10.1111/j.1467-9396.2009.00844.x

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
2
Abstract Views
167
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