Bilateral Trade Imbalances

83 Pages Posted: 3 Jun 2022

See all articles by Alejandro Cuñat

Alejandro Cuñat

University of Vienna

Robert Zymek

International Monetary Fund (IMF)

Multiple version iconThere are 2 versions of this paper

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

Cuñat, Alejandro and Zymek, Robert, Bilateral Trade Imbalances (May 1, 2022). IMF Working Paper No. 2022/090, Available at SSRN: https://ssrn.com/abstract=4124999

Alejandro Cuñat (Contact Author)

University of Vienna ( email )

Bruenner Strasse 72
Vienna, Vienna 1090
Austria

Robert Zymek

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

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