Internal Origins of External Imbalances
China Center for Economic Research (CCER)
No. E2011001 February 15, 2011
[Abstract] Global imbalances increase greatly since mid-1990s. I propose that heterogeneous aggregate risks within countries play important roles in determining cross-country distribution of external imbalances. High aggregate risks simultaneously cause high saving rate and low investment rate, leading to net export. Empirical examination reveals that net export increases with inflation volatility and decreases with institutional democracy, measuring economic and political risks, respectively. Inflation volatility raises net export via depressing investment. Institutional democracy reduces net export via lowing saving. These effects are economically significant and persist after controlling for other factors including per capital income, budget balance, dependency ratio, and financial development.
Key words: Global imbalances; saving glut; financial crisis; financial development; systematic risks
JEL: F30, F41
 The author thanks Yiping Huang, Guoqing Song, and seminar participants at the China Center for Economic Research (CCER) for comments and suggestions. The author thanks Li Pan and Shi Feng for excellent research assistance. Remaining errors and inaccuracies are my own responsibility. Correspondence: email@example.com. Phone: 86-10-62759293.