Mark Joy, Noëmie Lisack, Simon Lloyd, Rana Sajedi and Simon Whitaker

Trade liberalisation since the 1990s has boosted living standards by raising productivity growth. However, it has been predominantly skewed towards reducing barriers to goods trade, rather than services. Since then, goods-focussed exporters have seen increased current account surpluses, and those focussed on services, have seen increased deficits. Could these developments be causally related? In this post we argue that simple tweaks to a canonical two-country model can generate this result, and building on the Governor’s Mansion House Speech, we present empirical evidence that trade liberalisation has affected current account positions asymmetrically. That suggests future liberalisation of services trade, as well as generating increased gains from trade, could also help to reduce global imbalances.

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