Institutional Affiliation: Singapore Management University
|The Welfare Cost of a Current Account Imbalance: A "Clean" Effect|
with , : w27276
According to the existing open-economy macroeconomics literature, a current account surplus is associated with a welfare loss only when distortions exist in either savings or investment, and bilateral imbalances do not matter when holding a country's overall imbalance constant. We propose a new welfare effect even in the absence of such distortions. We also show that the patterns of bilateral imbalances matter for welfare. In our theory, a trade imbalance -- the largest component of a current account imbalance -- interacts with a country's pollution control ("cleanness") regime to generate welfare effects outside the standard channels. In particular, a trade surplus alters the shipping costs and the composition of a country's imports in ways that increase the disutility of pollution.
|Sizing up Market Failures in Export Pioneering Activities|
with , : w23893
We argue that existence of public good does not necessarily imply market failure, and illustrate this point in the context of international trade. An influential hypothesis states that export pioneers are too few relative to social optimum because the first exporter's action creates an informational public good for all subsequent exporters. The hypothesis has been invoked to justify certain types of government interventions. We note, however, that such market failure requires two inequalities to hold simultaneously: the discovery cost is neither too low nor too high. Neither has to hold in the data. We propose a structural estimation framework to evaluate the hypothesis, and estimate the parameters based on the customs data of Chinese electronics exports. Our key finding is that "missing p...