New perspectives on global trade imbalances

Abstract

Global trade imbalances have been a focal point of discussion in the newlineinternational trade literature and opinions remain highly divided with regard newlineto its origin in emerging market economies (EMEs) and advanced economies newline(AEs). We contribute to the debate by exploring some novel factors for a panel newlineof eight large EMEs over 1995-2018 providing balanced view to a literature newlinedivided between extremes. We investigate the true extent of mercantilist newlineunder-valuation in EMEs which was seen a major factor in global trade newlineimbalances that culminated in the 2008 Global Financial Crisis (GFC). newlineAccounting for structural differences between EMEs and AEs, we find that newlineunder-valuation was not a major factor before the GFC whereas after GFC it newlineincreased. China, India, Indonesia and Mexico were experiencing a newlinecorrection in real exchange rate (RER) towards equilibrium from over-valued newlinerates a year or two before the GFC. Post-GFC appreciation in equilibrium