Home Economy The solution to the mystery of the surplus trade balance: Economics

The solution to the mystery of the surplus trade balance: Economics


Whether the large bilateral trade imbalance is a sign of the cost of the trade with no reciprocity (or ‘unfairness’) has been the subject of debate for a while and has been of interest. during President Trump’s time in power. This column argues that taking into account the average trade costs of trading partners with the whole world, then the ‘unfair trade’ argument would be inappropriate. Using the standard model of gravity, the authors found that it is possible to account for up to 88% of variance in bilateral equations without referring to the asymmetry in bilateral trade costs.

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