Template-type: ReDIF-Paper 1.0
Author-Name: Philip U. Sauré
Author-Name-First: Philip U.
Author-Name-Last: Sauré
Author-Person: psa635
Title: Time-intensive R&D and unbalanced trade
Abstract: This paper highlights a novel mechanism that generates global imbalances. It develops a general equilibrium trade model with one of two countries having a comparative advantage in a sector whose production is characterized by (i) rapid, anticipated demand growth and (ii) large up-front R&D costs. International funding of the accruing R&D costs generates capital inflows in the R&D stage, which are balanced by subsequent outflows. Importantly, sector-level growth does not generate growth differentials between countries, typically regarded as rationales of global imbalances. Additionally, it is shown that a trade surplus can coincide with appreciations of the real exchange rate. I argue that Switzerland's trades surplus, which was driven to record heights during 2010-2014 by pharmaceutical exports, exemplifies this mechanism. Calibrating the model to Swisstrade flows underpins this argument.
Length: 35 pages
Creation-Date: 2015
Contact-Email: forschung@snb.ch
File-URL: https://www.snb.ch/en/publications/research/working-papers/2015/working_paper_2015_11
File-Format: text/html
Number: 2015-11
Classification-JEL: F12, F41
Keywords: Unbalanced trade, setup costs, R&D costs
Handle: RePEc:snb:snbwpa:2015-11