Trade reforms and current account imbalances

This paper studies the effects of trade liberalization on capital flows in a dynamic Heckscher-Ohlin model and makes four contributions. First, we identify an interest rate over-determination problem such model, solve it with endogenous discount factor. Second, show that developing country generally leads to greater current account surplus, which is exact opposite common but partial equilibrium intuition. Third, factor market reforms reinforce effect outflows. Finally, our calibrations suggest China's accession WTO likely important driving rise surplus during 2001–2010.