Are Global Imbalances Curable?

The current financial crisis has its roots in global imbalances. But global imbalances in turn are caused by long-term factors determining international division of labor. Countries that have comparative advantages in manufacturing or are rich in natural resources end up with current account surpluses, and countries that have comparative advantages in finance end up exporting financial services and running current account deficits. However, a flux of large quantities of liquidities into the deficit countries caused asset bubbles and ultimately leads to the crisis. To cure global imbalances, structural changes have to happen on both sides of the imbalances, and international organizations should play a more active role.