The effect of rates of growth of OECD countries on the United States balance of payments

The balance of payments is a statistical statement summarizing all transactions between the residents of one country and the residents of other countries over a given period of time, a year, for example. This accounting identity can be divided into four major sections: current account, capital account, changes in reserve, and errors and omissions. More recently, with the increase in the U.S. trade deficit, the current account has been the focal point of study among academics. Aside from national income and employment, few macroeconomic aggregates have received such prominence as the current account. One reason for this rise in prominence of the current account is that even though the U.S. economy is experiencing one of the longest periods of growth in its history, several structural imbalances are quite noticeable. One of these imbalances is the current account balance.;Economists commonly believe that in the medium-to-long-run range the U.S. current account of the balance of payments and, more importantly, the present U.S. trade deficit play a significant role in the determination of a country's standard of living. Traditional trade theory interprets the current account in relation to domestic macroeconomic factors. As is well known, the assumption that the U.S. current account is entirely a macroeconomic factor ruled out any other factors in determining the U.S. current account. Recently, two views on the determination of a country's current account and foreign debt have emerged (Semmler 1995). One view argues that the competitiveness of U.S. industries does have an impact on the U.S. trade position (Blecker 1992). The other view argues that the U.S. trade position represents the nation's spending habits (Blanchard 1983; Svenson and Razin 1983). However, the impact of competitiveness has been questioned since it is not practical to assume that the more or less a nation spends on technological innovation, the more or less its current account position will be. At the same time, the second view is flawed in that it is based on: (a) unrealistic construction of an intertemporally optimizing representative agent, (b) perfect capital market and capital mobility, and (c) an exogenously given rate of technological change (Senwaler 1995).;The purpose of this dissertation is to study the impact of the growth rate of organization for Economic Cooperation and Development (OECD) countries on the U.S. current account as an explanation for the U.S. current account deficit.