Long-Run Drivers of Current Account Imbalances in the EU: The Role of Trade Openness

Abstract

This paper investigates, using panel cointegration methods, the long-run drivers of current account imbalances in 15 EU member States during the period 1974-2011. We argue that the degree of trade openness greatly affects the relative strength of the different long-term drivers of current account imbalances. Our empirical results indicate that competitiveness factors strongly affect imbalances in countries with a low trade openness, while the effects weakens as trade openness increases. Similarly, we find evidence of a positive effects of government debt on current account deficits for high openness countries and a negative impact for medium and low openness countries. Our results suggest that the structural heterogeneity in the degree of openness across EU countries might be an important contributor to the diverging patterns in current account balances experienced in the last decades.

The effect of fiscal deficits on the external imbalances in the European Union

“…The results in Table 5 show that the estimated coefficients of error correction model satisfy initial criteria that they are negative, less than one and significant at the 1% of significance level. In comparing the PMG and MG estimators, the MG estimator is based on assumption that all coefficients are heterogeneous both in the short and in the long-run analysis, while PMG estimator involves the restriction for long-run coefficients to be the same across group and relax this restrictions for the short-term, where coefficients and intercepts are allowed to vary (Guiseppe Caivano and Nicola D. Coniglio 2016). The assumption of a long-run homogeneity increases the efficiency of the estimates because it reduces the standard errors of the long-run coefficients (Pesaran, Shin, and Smith 1999).…”

Trade, Financial Liberalisation and Current Account Balance in Nigeria

“…Moussa (2016) found a worsening current account due to trade openness in sub-Saharan African countries between 1980 and 2013. Caivano and Coniglio (2016) found that trade openness deteriorates current account in countries with strong trade restrictions and improves the account in countries that fully open to trade in a study of 15 EU countries from 1974-2011. Parikh and Stirbu (2004) discovered that trade openness exacerbates current account imbalances in a study of 42 developing countries from 1970-1999.…”

“…Others suggested that efficient financial system reduces the current account deficit through increase in domestic savings and investment (Chinn and Prasad, 2003;Herrmann and Jochem, 2005;Chinn and Ito, 2007). Conversely, current account deficit is related to country's degree of trade openness (Jiandong, Yi and Li, 2010;Romelli, Terra and Vasconcelos, 2018;Caivano and Coniglio, 2016;Moussa, 2016;Ibhagui 2018). By raising domestic savings and investments, trade openness is expected to minimise current account deficit and facilitate cross-border trade (Selçúk, Karaçor and Yardimci, 2015;Das, 2016).…”

AB Borç Krizi ve Makroekonomik Göstergelerle Türkiye-PIIGS (Portekiz, İrlanda, İtalya, Yunanistan, İspanya) Ülkeleri Değerlendirmesi

“…PIIGS grubunda başlangıçta küresel krizden en az etkilenen ülke ise İtalya olmuştur. Bankacılık sisteminin göreceli sağlamlığı ve konut balonlarının yokluğu ile birlikte, açıkları nispeten düşük tutmayı sağlayan İtalya'da kamu borcu, diğer ülkelere kıyasla daha yavaş büyümüştür (Caivano ve Coniglio, 2016).…”