Global Imbalances: Export-Led Growth Versus Import-Led Slowdown
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Global imbalances are still crucial. They are driven by major trade deficits of some countries (such as Germany and China) and surpluses of others (such as the USA). Trade surplus drives growth and employment; this is generally referred as export-led growth. However, while export-led growth is praised, the negative effects of imports and trade deficits are generally neglected. Trade deficits—in particular those due to ‘unnecessary’ imports—mean less growth and more unemployment for the importing country. As manufacturing constitutes the major part of world exports and imports, this implies that it is vital for growth and employment. This chapter explains these ideas using a facile mathematical framework for the general audience. Like Chap. 5, it forms a basis for why industrial policy is necessary especially in developing countries.
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