Endogenous Growth Models in Open Economies: A Possibility of Permanent Current Account Deficits

Harashima, Taiji (2009): Endogenous Growth Models in Open Economies: A Possibility of Permanent Current Account Deficits.

Abstract

The paper examines the impacts of heterogeneity in the degree of relative risk aversion on the balance on current account in the framework of endogenous growth, and concludes that, like heterogeneity in demographic changes, heterogeneity in the degree of relative risk aversion generates persisting current account imbalances. The imbalance continues permanently, but its ratio to outputs stabilizes. With evidence in many empirical studies that the degree of relative risk aversion in Japan is relatively higher than that in the U.S., the paper argues that the persisting bilateral trade deficit of the U.S. with Japan is partially generated by this mechanism.

• Item Type: MPRA Paper
• Language: English
• Keywords: Current account; Trade deficits; Capital flows; Endogenous growth; Risk aversion
• Subjects: F - International Economics > F2 - International Factor Movements and International Business > F21 - International Investment ; Long-Term Capital Movements; F - International Economics > F4 - Macroeconomic Aspects of International Trade and Finance > F41 - Open Economy Macroeconomics; F - International Economics > F4 - Macroeconomic Aspects of International Trade and Finance > F43 - Economic Growth of Open Economies; E - Macroeconomics and Monetary Economics > E1 - General Aggregative Models > E10 - General; O - Economic Development, Innovation, Technological Change, and Growth > O4 - Economic Growth and Aggregate Productivity > O40 - General

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