INTRODUCTION 6

OVERVIEW OF GLOBAL IMBALANCES 7

A. Evolution of Global Imbalances 10

B. Risks from Global Imbalances 13

CONCEPTUAL FRAMEWORK FOR ASSESSING DRIVERS OF CURRENT ACCOUNT BALANCES 16

A. Standard Macroeconomic Determinants of the Current Account 17

B. Trade Policies and the Current Account 1 9

C. Industrial Policies and the Current Account 21

MODEL BASED SIMULATIONS 26

EMPIRICAL EVIDENCE 30

A. Empirical Evidence on Standard Drivers of the Current Account 30

B. Empirical Evidence on the Impact of Trade and Industrial Policies on the Current Account 32

SCENARIOS FOR THE EVOLUTION OF CURRENT ACCOUNT BALANCES 36

A. How Could Imbalances Continue to Widen? Unbalanced Growth 37

B. How Can Imbalances Narrow? Reforms Aimed at Domestic Rebalancing 38

ROLE OF THE FUND IN FACILITATING INTERNATIONAL ADJUSTMENT 40

SUMMARY AND IMPLICATIONS FOR FUND SURVEILLANCE 44

ISSUES FOR DISCUSSION 46

References 47