Bilateral Trade Imbalances

Alejandro Cunat, Robert Zymek

Publications: Contribution to journalArticlePeer Reviewed

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.
Original languageEnglish
Pages (from-to)1537-1583
Number of pages47
JournalReview of Economic Studies
Volume91
Issue number3
DOIs
Publication statusPublished - 16 May 2023

Austrian Fields of Science 2012

  • 502018 Macroeconomics

Keywords

  • trade imbalances
  • trade wedges
  • gravity
  • Trade wedges
  • Trade imbalances
  • Gravity

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