Are Bilateral Trade Balances Irrelevant?

25 Pages Posted: 8 Dec 2020

See all articles by Johannes L. Eugster

Johannes L. Eugster

International Monetary Fund (IMF)

Florence Jaumotte

International Monetary Fund (IMF)

Margaux MacDonald

International Monetary Fund (IMF)

Roberto Piazza

International Monetary Fund (IMF)

Date Written: September 1, 2020

Abstract

Based on an empirical gravity model of sectoral bilateral trade, we uncover three features of bilateral trade balances. First, the difficulty of gravity models in fitting the observed level of bilateral balances is likely due to the presence of unobservable bilateral trade costs. Second, the model fit improves drastically when we focus on changes over time of the balances. Third, using a log linear approximation we show that changes in bilateral trade balances over the past two decades were driven almost entirely by changes in the same macro factors that determine countries' aggregate balances - changes in bilateral trade costs, including tariffs, played therefore only a negligible role. This conclusion provides new support for the view that bilateral balances are, for practical purposes, not relevant to the conduct of macroeconomic policy.

JEL Classification: F14, F32, F40, F62, F13, F10, C50

Suggested Citation

Eugster, Johannes L. and Jaumotte, Florence and MacDonald, Margaux and Piazza, Roberto, Are Bilateral Trade Balances Irrelevant? (September 1, 2020). IMF Working Paper No. 2020/210, Available at SSRN: https://ssrn.com/abstract=3744677

Johannes L. Eugster (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Florence Jaumotte

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States
202-623-6191 (Phone)

Margaux MacDonald

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Roberto Piazza

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
16
Abstract Views
102
PlumX Metrics