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Competitiveness and current account adjustments in the euro area

Author

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  • Böing, Tobias
  • Stadtmann, Georg

Abstract

We empirically assess the impact of competitiveness measured by unit labor costs for current account balances in the Euro area. For this purpose, we estimate a panel with annual observations from 2000 to 2013. Our findings confirm the importance of competitiveness: Higher unit labor costs growth leads to lower current account balances. By splitting up unit labor costs growth in wage growth and productivity growth, we find wage growth and productivity growth to have a significantly negative and positive effect, respectively. However, the effect of unit labor costs is mainly driven by productivity growth, so that wage cuts are relatively ineffective and painful to fight current account deficits. But pushing productivity is also likely to be ineffective, since its positive effect for the current account may be offset by its effect on wages and GDP, which decreases current account balances.

Suggested Citation

  • Böing, Tobias & Stadtmann, Georg, 2016. "Competitiveness and current account adjustments in the euro area," Discussion Papers 382, European University Viadrina Frankfurt (Oder), Department of Business Administration and Economics.
    • Handle: RePEc:zbw:euvwdp:382
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    Citations

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    Cited by:

    1. Radovan Kovačević, 2019. "The Export Performance Of The Euro Area: A Panel Quantile Regression Approach," Economic Annals, Faculty of Economics and Business, University of Belgrade, vol. 64(222), pages 7-62, July – Se.
    2. Marios-Georgios PSYCHALIS, 2020. "Euro Plus Pact: The Greek Case," Noble International Journal of Economics and Financial Research, Noble Academic Publsiher, vol. 5(10), pages 102-124, October.

    More about this item

    Keywords

    Euro Area; Competitiveness; Unit Labor Costs; Wage Growth; Labor Productivity Growth; Current Account; Panel;
    All these keywords.

    JEL classification:

    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • E69 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Other
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models

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