Tradability of Output and the Current Account in Europe

Client/Funding Institution

Jubilee Fund of the Austrian Central Bank

Abstract

One aspect in the debate about current account imbalances in Europe is the consequence of ‘de-industrialisation’ observable in several European countries. This project highlights the role of tradability of output as a key determinant of the current account balance. The relationship between a country’s specialisation in the production of tradables will be investigated empirically for 46 European countries over the period 1995-2014. To this end a tradability index is developed which can be understood as a country’s expected degree of openness given its economic structure. The tradability hypothesis to be tested in this project suggests that countries specialising in the production of relatively more tradable output have a tendency to run current account surpluses. It is shown that this relationship is also predicted by intertemporal models of the current account. The tradability hypothesis is tested using both panel regressions and cross-country regression techniques.

Duration

July 2015 - December 2016

wiiw team Leader

Roman Stöllinger

wiiw Staff

Alexandra Bykova, Manuela Engleitner, Mario Holzner, Michael Landesmann, Leon Podkaminer

Keywords: Current account, tradable goods, wage moderation, Europe

Countries covered: European Union, Europe

Research Areas: International Trade, Competitiveness and FDI, Sectoral studies


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