Connecting the (dirty) dots: Current account surplus and polluting production

Author

Jungho Lee, Singapore Management UniversityFollow
Shang-Jin WEI
Jianhuan XU, Singapore Management UniversityFollow

Publication Type

Working Paper

Version

Publisher’s Version

Publication Date

10-2023

Abstract

According to the existing open-economy macroeconomics literature, a current account surplus is associated with a welfare loss only when distortions exist in either savings or investment. We propose a new welfare effect even in the absence of such distortions. In our theory, a trade imbalance − the largest component of a current account imbalance − interacts with a country’s pollution control (“cleanness”) regime to generate welfare effects outside the standard channels. In particular, a trade surplus alters the shipping costs and composition of a country’s imports, producing a welfare loss associated with greater pollution.

Discipline

Econometrics | Economic Theory

Research Areas

Applied Microeconomics

First Page

1

Last Page

55

Embargo Period

12-13-2020

Citation

Lee, Jungho; WEI, Shang-Jin; and XU, Jianhuan. Connecting the (dirty) dots: Current account surplus and polluting production. (2023). 1-55.
Available at: https://ink.library.smu.edu.sg/soe_research/2422

Copyright Owner and License

Author

Creative Commons License

This work is licensed under a Creative Commons Attribution-NonCommercial-No Derivative Works 4.0 International License.