The US current account deficit and economic development
Subtitle: collateral for a total return swap
By: Michael P. Dooley, David Folkerts-Landau, Peter M. Garber.
Contributors: Folkerts-Landau, D. F. I. 1949-; Garber, Peter M.; National Bureau of Economic Research.
Series: NBER working paper series ;; working paper 10727; Working paper series (National Bureau of Economic Research : Online) ;; working paper no. 10727.
Publisher: National Bureau of Economic Research
Published: 2004
Place of publication: Cambridge, MA
Language: eng
Format: Electronic resource
Subjects: Deficit financing -- United States.; Budget deficits -- United States.; Balance of trade -- United States.
Description: "We argue that a chronic US current account deficit is an integral and sustainable feature of a successful international monetary system.  The US deficit supplies international collateral to the periphery.  International collateral in turn supports two-way trade in financial assets that liberates capital formation in poor countries from inefficient domestic financial markets.  The implicit international contract is analogous to a total return swap in domestic financial markets.  Using market-determined collateral arrangements from these transactions we compute the collateral requirements consistent with recent foreign direct investment in China.  The data are remarkably consistent with such calculations.  The analysis helps explain why net capital flows from poor to rich countries and recent evidence that net outflows of capital are associated with relatively high growth rates in emerging markets.  It also clarifies the role of the reserve currency in the system"--National Bureau of Economic Research web site.
Notes: Includes bibliographical references.
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