Raymond Richman - Jesse Richman - Howard Richman
Richmans' Trade and Taxes Blog
Paying the Piper
When countries run large current account deficits they accumulate debt in one form or another. And this debt can later cause serious economic harm. The graph below compares the growth rates of countries that ran large average current account deficits (more than five percent of GDP) in the 2002 to 2007 period with growth rates for countries that ran large current account surpluses during this period (more than five percent of GDP).
For the 2002 through 2007 period there are differences -- the average growth rate was higher for countries with surpluses. The differences are even more pronounced in the 2010 growth estimates. Countries with a history of running trade surpluses have recovered rapidly from the recession and are growing quickly. Countries with a history of running current account deficits... not so much.
Journal of Economic Literature:
Atlantic Economic Journal: