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Testing the demand regime hypothesis in the Euro Area. Evidence from a VAR approach

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  • Giovanni Covi

Abstract

The article brings new evidence that intra Euro Area trade imbalances should be thought of as the outcome of the interaction of opposing growth strategies between northern/surplus countries (Austria, Belgium, Germany, Netherlands) and southern/deficit countries (France, Italy, Portugal, Spain). By using a vector autoregression model, econometric evidence clarifies that the demand regime in the southern region is wage-led, while profit-led in the northern region. Moreover, a downward-wage adjustment in the northern region (negative wage shock) contributed to increasing the intra-EA trade surplus vis-à-vis the southern region by far more than an upward-wage adjustment in the southern region (positive wage shock).

Suggested Citation

  • Giovanni Covi, 2018. "Testing the demand regime hypothesis in the Euro Area. Evidence from a VAR approach," Applied Economics Letters, Taylor & Francis Journals, vol. 25(9), pages 632-637, May.
    • Handle: RePEc:taf:apeclt:v:25:y:2018:i:9:p:632-637
    DOI: 10.1080/13504851.2017.1352075
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    Cited by:

    1. Cárdenas, Luis & Fernández, Rafael, 2020. "Revisiting francoist developmentalism: The influence of wages in the Spanish growth model," Structural Change and Economic Dynamics, Elsevier, vol. 52(C), pages 260-268.

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