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

Author

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  • Giuseppe Caivano

    (Università degli Studi di Bari "Aldo Moro")

  • Nicola D. Coniglio

    (Università degli Studi di Bari "Aldo Moro")

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.

Suggested Citation

  • Giuseppe Caivano & Nicola D. Coniglio, 2016. "Long-Run Drivers of Current Account Imbalances in the EU: the Role of Trade Openness," SERIES 03-2016, Dipartimento di Economia e Finanza - Università degli Studi di Bari "Aldo Moro", revised May 2016.
  • Handle: RePEc:bai:series:series_wp_03-2016
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    More about this item

    Keywords

    Current account imbalances; panel cointegration; trade openness;
    All these keywords.

    JEL classification:

    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • O15 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Economic Development: Human Resources; Human Development; Income Distribution; Migration
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

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