Payments Imbalances
Payments Imbalances
Table 2.4 highlights the current account balances (exports minus imports of
_ goods, services, and unilateral transfers) of different categories of countries
during the period 1981-1990. The performance in the developing countries
has been mixed. Overall, the deficit improved until the mid-1980s, and it has
fluctuated over the last half of the decade. It has definitely improved in the
Asian region, however.
The industrial countries as a group did not do very well, largely because
of the performance of the United States. The U.S. deficit on its current account
Germany. The huge U.S. deficit has been a constant source of contention
between the United States and the rest of the world. Since a country's balance
of payments must always be stable, the United States has been able to offset
its current account deficit with an inflow of capital from abroad. Foreign gov-
ernments and individuals have continued to invest in the United States be-
cause of relatively high real interest rates, political stability, a strong local
economy, and general confidence in the political and economic system of the
United States. In addition, in the early 1980s U.S. firms began to invest more
in the United States than abroad, thereby reducing the outflow of foreign direct
investment. As a result, the United States has been buying foreign products
and selling the strength and stability of the U.S. economy. Some feel that this
heavy reliance on foreign capital has made the United States the world's larg-
est debtor. However, the money has flowed in as a result of economic oppor-
tunity in a way significantly different from that of other large debtor nations.
Some would argue that a current account surplus is evidence of a mer-
cantilist government policy, where a government favors exports over imports.
Countries with surpluses tend to be fairly satisfied with their situation. In
recent years, however, countries with large surpluses such as Taiwan and
Japan, have been pressured to open their markets and stimulate consumption
in order to reduce the surplus. Countries with deficits have been under pres-
sure to increase exports and correct fundamental economic imbalances in order
to slow down imports and bring the trade deficit up to a more even balance.
Table 2.4 highlights the current account balances (exports minus imports of
_ goods, services, and unilateral transfers) of different categories of countries
during the period 1981-1990. The performance in the developing countries
has been mixed. Overall, the deficit improved until the mid-1980s, and it has
fluctuated over the last half of the decade. It has definitely improved in the
Asian region, however.
The industrial countries as a group did not do very well, largely because
of the performance of the United States. The U.S. deficit on its current account
Germany. The huge U.S. deficit has been a constant source of contention
between the United States and the rest of the world. Since a country's balance
of payments must always be stable, the United States has been able to offset
its current account deficit with an inflow of capital from abroad. Foreign gov-
ernments and individuals have continued to invest in the United States be-
cause of relatively high real interest rates, political stability, a strong local
economy, and general confidence in the political and economic system of the
United States. In addition, in the early 1980s U.S. firms began to invest more
in the United States than abroad, thereby reducing the outflow of foreign direct
investment. As a result, the United States has been buying foreign products
and selling the strength and stability of the U.S. economy. Some feel that this
heavy reliance on foreign capital has made the United States the world's larg-
est debtor. However, the money has flowed in as a result of economic oppor-
tunity in a way significantly different from that of other large debtor nations.
Some would argue that a current account surplus is evidence of a mer-
cantilist government policy, where a government favors exports over imports.
Countries with surpluses tend to be fairly satisfied with their situation. In
recent years, however, countries with large surpluses such as Taiwan and
Japan, have been pressured to open their markets and stimulate consumption
in order to reduce the surplus. Countries with deficits have been under pres-
sure to increase exports and correct fundamental economic imbalances in order
to slow down imports and bring the trade deficit up to a more even balance.
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