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Paper #1503

Títol:
Global imbalances revisited: The transfer problem and transport costs in monopolistic competition
Autors:
Paolo Epifani i Gino Gancia
Data:
Desembre 2015 (Revisió: Febrer 2017)
Resum:
We study the welfare effects of trade imbalances in a two-sector model of monopolistic competition. As in perfect competition, a trade surplus involves an income transfer to the deficit country and possibly a terms-of-trade deterioration. Unlike the conventional wisdom, however, trade imbalances do not impose any double burden on surplus countries. This is because of a production-delocation effect, which leads to a reduction in the local price index. In the presence of intermediate goods, new results arise: A trade surplus may lead to an appreciation of the exchange rate, to a terms-of-trade improvement and even to a welfare increase. Numerical simulations show that, under realistic assumptions about preferences and technology, the beneficial price-index effect can significantly reduce the direct cost of the transfer.
Paraules clau:
Trade Imbalances; Trade Costs; Monopolistic Competition; Intermediate Goods.
Codis JEL:
F1
Àrea de Recerca:
Macroeconomia i Economia Internacional
Comentari:
Forthcoming in Journal of International Economics

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