TY  - JOUR
AU  - Dekle,Robert
AU  - Eaton,Jonathan
AU  - Kortum,Samuel
TI  - Unbalanced Trade
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 13035
PY  - 2007
Y2  - April 2007
UR  - http://www.nber.org/papers/w13035
L1  - http://www.nber.org/papers/w13035.pdf
N1  - Author contact info:
Robert Dekle
Department of Economics
University of Southern California
Los Angeles, CA  90089
Tel: 213-740-2134; dekle@usc.edu
E-Mail: dekle@usc.edu

Jonathan Eaton
Department of Economics
New York University
19 W. 4th Street, 6th Floor
New York, NY  10012
Tel: 617/353-4142
Fax: 617/353-4449
E-Mail: jonathan.eaton@nyu.edu

Samuel S. Kortum
Department of Economics
University of Chicago
1126 East 59th Street
Chicago, IL 60637
Tel: 773/702-8251
Fax: 773/702-8490
E-Mail: kortum@uchicago.edu
AB  - We incorporate trade imbalances into a quantitative model of bilateral trade in manufactures, dividing the world into forty countries. Fitting the model to 2004 data on GDP and bilateral trade we calculate how relative wages, real wages, and welfare would differ in a counterfactual world with all current accounts balancing. Our results indicate that closing the current accounts requires modest changes in relative wages. The country with the largest deficit (the United States) needs its wage to fall by around 10 percent relative to the country with the largest surplus (Japan). But the prevalence of nontraded goods means that the real wage in Japan barely rises while the U.S. real wage falls by less than 1 percent. The geographic barriers implied by the current pattern of trade are sufficiently asymmetric that large bilateral deficits remain even after current accounts balance. The U.S. manufacturing trade deficit with China falls to $65 billion from its 2004 level of $167 billion.
ER  -