Journal Article

Trade deficits: causes and consequences

Abstract: According to conventional wisdom, trade balances reflect a country's competitive strength-the lower the trade deficit, the stronger the country's industries and the higher its rate of economic growth. In this article, David Gould and Roy Ruffin review the history of the conventional wisdom and empirically examine whether large overall trade deficits or bilateral trade imbalances are associated with lower rates of economic growth. They find that, once the fundamental determinants of growth have been accounted for, trade imbalances have little effect on rates of economic growth.

Keywords: Deficit financing; Free trade;

Bibliographic Information

Provider: Federal Reserve Bank of Dallas

Part of Series: Economic and Financial Policy Review

Publication Date: 1996

Issue: Q IV

Pages: 10-20