Tradability of Output and the Current Account: An Empirical Investigation for Europe

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Roman Stöllinger

wiiw Working Paper No. 134, January 2017
54 pages including 15 Tables and 3 Figures

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We put forward the hypothesis that increasing specialisation in the production of non-tradable output has a negative impact on the current account balance. This tradability hypothesis is directly derived from a two-sector inter-temporal current account model. To test it empirically we develop a value-added based tradability index which captures the tradability of a country’s output. Applied to a large sample of European countries, our empirical model provides strong evidence for a positive relationship between the current account balance and the tradability index. The main policy implication is that the anxieties about ‘de-industrialisation’ in large parts of Europe seem justified with a view to growing external imbalances.

 

Reference to wiiw databases: wiiw Annual Database

Keywords: current account, tradability index, tradable goods, structural change, value added exports

JEL classification: F41, F32, F10, F14

Countries covered: Europe

Research Areas: Macroeconomic Analysis and Policy, International Trade, Competitiveness and FDI


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