Bilateral Trade Imbalances

47 Pages Posted: 14 Oct 2019

See all articles by Alejandro Cuñat

Alejandro Cuñat

University of Vienna

Robert Zymek

University of Edinburgh - School of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: 2019

Abstract

Bilateral trade imbalances are determined by aggregate trade imbalances, production and expenditure patterns, and trade barriers. We calibrate a dynamic many-sector trade model to match the recent sectoral trade and production shares of 40 economies and the rest of the world. Through a variance decomposition and counterfactuals, the model allows us to assess the relative importance of these determinants for the observed variation in bilateral imbalances. Large pairwise asymmetries in residual trade "wedges" are needed for the model to match the data. These account for roughly 60% of the variation, with most of the rest due to differences in production and expenditure patterns. Aggregate trade imbalances play a minor role. A counterfactual trade policy which eliminates trade-wedge asymmetries would have sizeable effects on bilateral trade patterns and welfare. However, it would leave aggregate trade balances virtually unchanged.

Keywords: trade imbalances, trade wedges, gravity

JEL Classification: F150, F200, F320, F400, F620

Suggested Citation

Cuñat, Alejandro and Zymek, Robert, Bilateral Trade Imbalances (2019). CESifo Working Paper No. 7823, Available at SSRN: https://ssrn.com/abstract=3467956 or http://dx.doi.org/10.2139/ssrn.3467956

Alejandro Cuñat (Contact Author)

University of Vienna ( email )

Bruenner Strasse 72
Vienna, Vienna 1090
Austria

Robert Zymek

University of Edinburgh - School of Economics ( email )

31 Buccleuch Place
Edinburgh, EH8 9JT
United Kingdom

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
103
Abstract Views
429
Rank
269,996
PlumX Metrics