Gains From Trade in a Deficit-Ridden Economy - Note

The US deficit on current account is frequently considered to be a problem of the US. A recently published paper by BATRA and BELADI [1996] is a case in point. By drawing on a revealed preference framework they claim that it might be better for the US to impose trade restrictions in order to balance the US current account. However, by employing the same revealed preference approach and adopting an intertemporal perspective, our note shows that the case for free trade also holds in an intertemporal setting.