12 / 2015-09-11 08:43:43

Financial Development Difference, Capital mismatch and Sino-US economic imbalance

Financial development, capital mismatch,current account,net foreign assets,Sino-U.S. economic imbalance

Through constructing a theoretical two-country model on the economic imbalance, this paper summarizes the effect of financial development differences and capital mismatch on Sino-US economic imbalance. The financial development differences might lead to the endogenous capital mismatch between the real economy sector and financial service departments of the two countries. Thus, the “adverse-trading effect” and relative fluctuations of interest rates between China and the U.S. cause a large accumulation of China’s trade surplus and net assets against the U.S. The paper further tests the effect of financial development differences and capital mismatch on Sino-US economic imbalance during 1999Q1 and 2013Q4. The result shows that the population structure, financial status, economic growth, financial development differences and capital mismatch are important determinants of Sino-U.S. economic imbalance. The effect of financial development differences on Sino-US economic imbalance relies on the selection of alternative variables thus is uncertain; the capital mismatch rate of China’s real economy sector and financial service departments is higher than that of the U.S., which leads to a continuously increase in Sino-US economic imbalance.