Global Imbalances: The Blind Men and the Elephant

Barry Eichengreen


This paper reviews competing explanations for the pattern of global imbalances and the magnitude of the U.S. external deficit. It argues that, far from being incompatible, existing explanations are all parts of the larger story. The decline in savings rates in the United States has played an important role in the emergence of global and U.S. imbalances. At the same time, favorable productivity trends have made the U.S. a more appealing place to invest, attracting foreign savings that help to underwrite U.S. investment and finance the current account. The so-called global savings glut is a factor in the global imbalance insofar as it supports capital flows to and investment in the United States. Finally, the Sino-American co-dependency view emphasizes how Asian countries, owing to a combination of heightened risk aversion following the 1997–8 crisis and their continued commitment to export-led growth, are happy with a situation where export demand is disproportionately important relative to domestic demand, a position that is sustained by undervalued exchange rates and reflected in rapid U.S. import growth.