Essays in Honour of Peter Lloyd, Volume II
Edited by Sisira Jayasuriya
Chapter 11: The surge in US imports, 1995 - 2001
11. The surge in US imports, 1995–2001 Mordechai E. Kreinin 1. INTRODUCTION In 1987, after six straight years of large current account deﬁcits, the USA became a net debtor country. In year 2001, the trade deﬁcit was $426 billion and the current account deﬁcit reached $417 billion (over 4 per cent of GDP). It was financed by a capital account surplus of over $400 billion and a small rise in foreign oﬃcial reserves.1 (Imports declined somewhat from 2000 to 2001, reﬂecting the slowdown in the economy.) By year 2000 the US net foreign debt position reached $1.8 trillion – about 18 per cent of GDP. The sustainability of these large current account deﬁcits and their potential consequences have been a matter of discussion in the literature. But their root cause has been attributed to the large trade deﬁcits propelled by diﬀerential growth rates in the USA and abroad.2 In particular the massive growth in US imports, to $1223 billion in 2000, is said to be the result of an income eﬀect; to wit, the rapid growth of the economy between 1995 and 2000, with real GDP rising at over 4 per cent per year. By comparison, US exports were hampered by stagnation and crisis elsewhere in the late 1990s. In short, the surge in US imports is explained by the usual independent variables in the importdemand function. Indeed, all the evidence points to the growth eﬀect on US consumers and...
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