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Long-run relationship between exports and imports: current account sustainability tests for the EU

Author

Listed:
  • António Afonso

    (Universidade de Lisboa
    UECE – Research Unit on Complexity and Economics)

  • Florence Huart

    (Université de Lille)

  • João Tovar Jalles

    (Portuguese Public Finance Council
    REM/UECE
    Campus Campolide)

  • Piotr Stanek

    (Cracow University of Economics)

Abstract

We assess the sustainability of external imbalances for EU countries using panel stationarity tests of Current Account (CA) balance-to-GDP ratios and panel cointegration of exports and imports of goods and services, for the period 1970Q1–2015Q4. We find that: i) the country panel is non-stationary; ii) cross-sectional dependence plays an important role; iii) there is non-stationarity of the CA, imports, and exports with cross-sectional panel dependence and multiple structural breaks; iv) however, there is a stable long-run relationship between exports and imports in the panel. Hence, trade imbalances can be less unsustainable but this is not sufficient to make current account imbalances sustainable.

Suggested Citation

  • António Afonso & Florence Huart & João Tovar Jalles & Piotr Stanek, 2020. "Long-run relationship between exports and imports: current account sustainability tests for the EU," Portuguese Economic Journal, Springer;Instituto Superior de Economia e Gestao, vol. 19(2), pages 155-170, May.
    • Handle: RePEc:spr:portec:v:19:y:2020:i:2:d:10.1007_s10258-019-00168-x
    DOI: 10.1007/s10258-019-00168-x
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    More about this item

    Keywords

    Current account; Exports; Imports; Unit roots; Cointegration;
    All these keywords.

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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