Bilateral Trade Imbalances
83 Pages Posted: 3 Jun 2022
There are 2 versions of this paper
Bilateral Trade Imbalances
Date Written: May 1, 2022
Abstract
If sectoral trade flows obey structural gravity, countries' bilateral trade imbalances are the result of macro trade imbalances, “triangular trade”, or pairwise asymmetric trade barriers. Using data for 40 major economies and the Rest of the World, we show that large and pervasive asymmetries in trade barriers are required to account for most of the observed variation in bilateral imbalances. A dynamic quantitative trade model suggests that eliminating these asymmetries would significantly reduce bilateral (but not macro) imbalances and have sizeable impacts on welfare. We provide evidence that the asymmetries we measure are in part related to the policy environment: trade inside the European Single Market appears to be subject to more bilaterally symmetric frictions. Extending the same symmetry to all parts of the global economy would give a large boost to the real incomes of several non-E.U. countries.
Keywords: trade imbalances, trade wedges, gravity, estimating trade wedge, sectoral trade flow, trade model, trade-wedge asymmetry, trade cost, Trade balance, Plurilateral trade, Exports, Trade barriers, Imports, Global
JEL Classification: F15, F20, F32, F40, F62, F14, F13, F10
Suggested Citation: Suggested Citation