US–China External Imbalance and the Global Financial Crisis

This paper advances an alternative explanation of the large external imbalance between the United States and China, and its linkages to the current global financial crisis. We show that US current account deficits dated back long before the emergence of China's recent large trade surpluses, wit...

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Main Authors:	Lin, Justin Yifu, Dinh, Hinh T., Im, Fernando
Format:	Journal Article
Language:	en_US
Published:	Taylor and Francis 2013
Subjects:	global imbalance financial crisis economic distortion
Online Access:	http://hdl.handle.net/10986/15765

id	okr-10986-15765
recordtype	oai_dc
spelling	okr-10986-157652021-04-23T14:03:22Z US–China External Imbalance and the Global Financial Crisis Lin, Justin Yifu Dinh, Hinh T. Im, Fernando global imbalance financial crisis economic distortion This paper advances an alternative explanation of the large external imbalance between the United States and China, and its linkages to the current global financial crisis. We show that US current account deficits dated back long before the emergence of China's recent large trade surpluses, with China accounting at its peak for at most one-third of this deficit. The relative rise in China's savings in recent years can be attributed to an increase in its corporate savings, a trend that reflects distortions arising from the transition process from a planned to a market economy. These distortions exacerbate China's income inequality, causing domestic consumption to remain a small share of GDP. Large recent current account deficits in the United States, on the other hand, can be attributed to public sector disserving and perverse incentives generated by housing and equity bubbles, made possible by loose monetary policy and by “innovative” financial derivatives arising from the financial deregulation in the early 1980s. The paper shows that short-run measures are unlikely to fully address these external imbalances. Both countries require long-run, structural measures to resolve the underlying problems and to restore a sustainable foundation for growth. 2013-09-12T19:15:52Z 2013-09-12T19:15:52Z 2010-06-23 Journal Article China Economic Journal 1753-8971 DOI:10.1080/17538963.2010.487348 http://hdl.handle.net/10986/15765 en_US http://creativecommons.org/licenses/by-nc-nd/3.0/igo CC BY-NC-ND 3.0 IGO http://creativecommons.org/licenses/by-nc-nd/3.0/igo/ World Bank Taylor and Francis Journal Article China UNITED STATES
repository_type	Digital Repository
institution_category	Foreign Institution
institution	Digital Repositories
building	World Bank Open Knowledge Repository
collection	World Bank
language	en_US
topic	global imbalance financial crisis economic distortion
spellingShingle	global imbalance financial crisis economic distortion Lin, Justin Yifu Dinh, Hinh T. Im, Fernando US–China External Imbalance and the Global Financial Crisis
geographic_facet	China UNITED STATES
relation	http://creativecommons.org/licenses/by-nc-nd/3.0/igo
description	This paper advances an alternative explanation of the large external imbalance between the United States and China, and its linkages to the current global financial crisis. We show that US current account deficits dated back long before the emergence of China's recent large trade surpluses, with China accounting at its peak for at most one-third of this deficit. The relative rise in China's savings in recent years can be attributed to an increase in its corporate savings, a trend that reflects distortions arising from the transition process from a planned to a market economy. These distortions exacerbate China's income inequality, causing domestic consumption to remain a small share of GDP. Large recent current account deficits in the United States, on the other hand, can be attributed to public sector disserving and perverse incentives generated by housing and equity bubbles, made possible by loose monetary policy and by “innovative” financial derivatives arising from the financial deregulation in the early 1980s. The paper shows that short-run measures are unlikely to fully address these external imbalances. Both countries require long-run, structural measures to resolve the underlying problems and to restore a sustainable foundation for growth.
format	Journal Article
author	Lin, Justin Yifu Dinh, Hinh T. Im, Fernando
author_facet	Lin, Justin Yifu Dinh, Hinh T. Im, Fernando
author_sort	Lin, Justin Yifu
title	US–China External Imbalance and the Global Financial Crisis
title_short	US–China External Imbalance and the Global Financial Crisis
title_full	US–China External Imbalance and the Global Financial Crisis
title_fullStr	US–China External Imbalance and the Global Financial Crisis
title_full_unstemmed	US–China External Imbalance and the Global Financial Crisis
title_sort	us–china external imbalance and the global financial crisis
publisher	Taylor and Francis
publishDate	2013
url	http://hdl.handle.net/10986/15765
_version_	1764431082408640512

US–China External Imbalance and the Global Financial Crisis

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