A study of trade surpluses: Assessing alternative strategies for reserve management

Abstract

Since time immemorial, trade and commerce have played an indispensable in global integration, bringing together countries, civilizations and people. The rapid advancement in telecommunication and transportation technologies in the last two centuries have further boosted the value-share of trade in the economy. Also, the increased emphasis on GDP, inflation, growth and employment, and the linkages these variables have to a nation’s overall trading activity, has made National Trade Balance a center stage economic parameter. After the end of the Second World War, countries like Germany and Japan reconstructed themselves magnificently. Their low-inflation, productivity driven growth made them export powerhouses of the world. There were other countries like Russia and Saudi Arabia, which, by virtue of their resource wealth, became global exporters. Among those who gained their independence in the middle of the 20th century, China made huge strides of progress in 1980s, and leveraging its low cost of manufacturing, consolidated its position as a major exporter by the end of the century. Over years, these countries ran trade surpluses and accumulated huge reserves. The next obvious question was the utilization of these surpluses for economic welfare. Through this project we seek to explore and understand the various alternatives for utilization of trade surplus, and the factors on which the alternatives exercised by a nation depend.