The Origins of Persistent Current Account Imbalances in the Post-Bretton Woods Era

Comparative Political Studies, July 2019, DOI: 10.1177/0010414019859031

39 Pages Posted: 15 Nov 2014 Last revised: 18 Jul 2019

See all articles by Mark S. Manger

Mark S. Manger

University of Toronto - Munk School of Global Affairs and Public Policy

Thomas Sattler

University of Geneva - Department of Political Science and International Relations

Date Written: July 26, 2017

Abstract

Why do some countries run persistent current account surpluses? Why do others run deficits, often over decades, leading to enduring global imbalances? Such persistent imbalances are the root cause of many financial crises and a major source of international economic conflict. We propose that differences in wage-bargaining institutions explain a large share of imbalances through their effect on the trade balance. In countries with coordinated wage bargaining, wage growth in export industries can be restrained to ensure competitiveness, leading to persistent trade surpluses. We estimate the contribution of these institutions to trade balances in Organisation for Economic Co-operation and Development (OECD) member countries since 1977 and find ample support for our hypothesis. Contrary to much of the literature, the choice of fixed or floating exchange rate regimes has only a small effect on trade or current account balances. In other words, internal adjustment in surplus countries via wage-bargaining institutions trumps external adjustment by deficit countries.

Keywords: current account, wage bargaining, competitiveness, exchange rates, euro crisis

JEL Classification: F41, F59

Suggested Citation

Manger, Mark S. and Sattler, Thomas, The Origins of Persistent Current Account Imbalances in the Post-Bretton Woods Era (July 26, 2017). Comparative Political Studies, July 2019, DOI: 10.1177/0010414019859031, Available at SSRN: https://ssrn.com/abstract=2523954 or http://dx.doi.org/10.2139/ssrn.2523954

Mark S. Manger (Contact Author)

University of Toronto - Munk School of Global Affairs and Public Policy ( email )

Toronto, Ontario
Canada

Thomas Sattler

University of Geneva - Department of Political Science and International Relations ( email )

40 boulevard du Pont d'Arve
Genève 4, Geneve CH-1211
Switzerland

HOME PAGE: http://www.thomassattler.org

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