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United States - China external imbalance and the global financial crisis (English)

This paper advances an alternative explanation of the large external imbalance between the United States (U.S.) and China, and its linkages to the current global financial crisis. The authors show that U.S. 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 which 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 gross domestic product (GDP). Large recent current account deficits in the U.S., on the other hand, can be attributed to public sector dissaving's 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.

Details

  • Author

    Dinh,Hinh Truong, Im,Fernando Gabriel, Lin, Justin Yifu

  • Document Date

    2010/06/23

  • Document Type

    Journal Article

  • Report Number

    82061

  • Volume No

    1

  • Total Volume(s)

    1

  • Country

    United States,

    China,

  • Region

    East Asia and Pacific, Rest Of The World,

  • Disclosure Date

    2014/02/17

  • Disclosure Status

    Disclosed

  • Doc Name

    United States - China external imbalance and the global financial crisis

  • Keywords

    current account deficit;global imbalance;trade deficit;global financial crisis;real effective exchange rate;current account surplus;personal disposable income;Bureau of Economic Analysis;global economic recovery;persistent current account deficit;gross fixed capital formation;advanced country;world development indicator;renewable source of energy;public sector balance sheet;increase in interest rate;consumption;loose monetary policy;disposable personal income;credit crunch;world economic;global economic growth;trade surplus;global economy;equity market;capital flow;source of income;source income;current account balance;delinquency rate;financial market;Real estate;external imbalance;investment demand;remittance;commercial bank;aggregate demand;commodity price;excess liquidity;demand for consumption;exchange rate policy;cost of capital;national income account;agricultural raw material;types of loan;global trade volume;asymmetric information problem;business investment decision;world equity market;fiscal stimulus package;decline in investment;drop in remittance;financial sector balance;integrated financial system;provision of guarantee;private sector demand;public sector saving;improving energy efficiency;dynamic economic growth;real estate property;household disposable income;massive capital inflow;Exchange rate policies;foreign direct investment;sequence of events;international capital market;demand for fund;real estate market;household net worth;world capital market;global economic crisis;export of capital;foreign exchange market;high growth rate;remittances to family;current account imbalance;commodity price index;asset price bubble;imports of consumption;bilateral exchange rate;social security fund;inflow of capital;quality control mechanism;lower interest rate;foreign exchange rate;financial deregulation;Exchange Rates;domestic demand;

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Citation

Dinh,Hinh Truong Im,Fernando Gabriel Lin, Justin Yifu

United States - China external imbalance and the global financial crisis (English). Author accepted manuscript Washington, D.C. : World Bank Group. http://documents.worldbank.org/curated/en/666851468173069729/United-States-China-external-imbalance-and-the-global-financial-crisis