Global Economic Imbalances: Characteristics, Mechanisms And Sustainability

This paper analyzes the formation mechanism and sustainability of the global imbalances from four perspectives, including comparative advantage and disparity of aggregate production and spending in different countries, the imbalances between investment and savings, currency mismatch and dollar-dependence in Asia countries, transnational capital flows for financial advantage gap.Firstly, from the perspective of disparity of production and spending, because of the comparative advantage differences resulted from long-term factors such as population, resources as well as science and technology, the production is greater than spending in developing countries, while spending is greater than production in developed countries. The imbalance will exist for a long term and constitute the profound basis of global imbalance from real economy.Secondly, from the perspective of investment and savings imbalance, high savings rate in developing countries correlate with the population structure. The high saving rate of developing countries is not the direct reason of the high expenditure of developed countries and loose credit policy and fiscal deficit of developed countries contribute to the high spending.Thirdly, from the perspective of currency mismatch and dollar-dependence in Asia countries, Asian countries need a certain scale of U.S. dollars reserve to keep economic stability and to avoid currency crisis in export-oriented economy. Adopting managed floating exchange rate system is positive for developing countries to eliminate economic instability.Fourthly, from the perspective of transnational capital flows under financial advantage disparity of developing countries and developed countries, the financial advantage disparity push the transnational capital flow and affect global imbalances by the channel of exchange rate.From the above-mentioned analysis, this paper posts elements of global imbalances from three levels. Firstly, based on the real economy, the disparity of comparative advantage leads to the disparity of global production and spending. Secondly, the international currency system centering with the US dollar accelerates the global imbalances and facilitates its accumulation and sustainability in certain extent. Thirdly, other systematic factors also lead to certain distortions of global imbalances, including trade protectionism, exchange rate policy, finance deficit of US government, low long term interest rate and loose credit policy, etc.This paper argues the significant issues of developing countries in the course of global rebalance. Firstly, a country should develop labor-intensive industry when the native residual labor has not been absorbed totally by industry sector. Secondly, the foreign exchange policy should be adjusted according to the change of comparative advantages. When the comparative advantage of the countries comes to disappearing in global dividend system, stabilization of exchange rate should be emphasized and sharp adjustment is harmful. Thirdly, developing countries should cancel the preferential policies for developed countries'capital inflow in due course and export capital actively to share global comparative advantages interest, reduce trade frictions and increase the foreign exchange asset value.This paper is divided into seven chapters. The first chapter is introduction and introduces the background, significance and literature review of the paper. The second chapter introduces the phenomena and characteristic of global imbalance. The third, the fourth, the fifth and the sixth chapter are the core parts of paper and they argue systematically the formation mechanism separately from four perspectives. The seventh chapter classifies the factor of global imbalances from another angle and discusses further the sustainability and countermeasures of rebalance of global imbalances.