Bilateral Trade Imbalances

In standard quantitative models, bilateral trade imbalances are determined by aggregate imbalances, expenditure and production patterns, wedges. We calibrate such a model using recent data on incomes, factor endowments, sector-level expenditures, outputs flows for 40 economies the rest of world. Large pairwise asymmetries in wedges needed model’s bilateral-trade predictions to match data. They account 21-35% deviation imbalances. Aggregate play minor role, while more than 50% variation is explained international differences patterns.