Growth Prospects and the Trade Balance in Advanced Economies*

Abstract

Does an improvement in growth prospects (technological news shock) lead to a fall in the trade balance? We introduce a novel news shock identification scheme and obtain in a panel vector autoregression (VAR) for the G7 countries the following results. Positive news shocks have negative effects on the trade balance in the United States and Japan. However, in other G7 countries, the effects are positive to a great extent. The differences in trade balance dynamics are mainly due to heterogeneous reactions of labour markets and wealth effects. Further, the terms of trade and exchange rate movements play an important role in explaining the results. Therefore, policy recommendations aimed at reducing the trade imbalances through productivity‐enhancing reforms in advanced economies might not entail the targeted effects.

The diffusion of technological progress in ICT

“…Technical Implementation. From a technical point of view, we consolidate step 1 and 2 as in Cascaldi-Garcia and Galvão (2020) and Belke et al (2020). Equivalent to the two regressions, we apply two QR-decompositions to the three eigenvectors that define the auxiliary shocks from step 1.…”

The effect of legislated tax changes on the trade balance: Empirical evidence for the United States, Germany, and the United Kingdom

“…Given the small magnitude of the effect and the notable loss in government revenues, they do not recommend such a policy (BMWi, 2017, p. 14). Belke et al (2020) argue that the German trade surplus is a problem of potential output growth.…”