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Italy's current account sustainability:a long run perspective, 1861-2000

  • Barbara Pistoresi

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    This paper analyzes the sustainability of Italy’s current accounts from 1861 to 2000. Whether or not we find empirical support to sustainability depends on the statistical condition of stationarity of the current account series. Non stationarity of the current accounts implies the economy has violated its intertemporal budget constraint. Unit root tests to study the stationarity of Italy’s current accounts suggest that in the long run (1861 to 2000) Italy’s external position was sustainable: the Italian economy seems to have used the external deficits (surpluses) to smooth its aggregate consumption. The persistent current account deficits in the shorter 1861-1913 period were generated by foreign capital inflows that allowed investment to rise and, in turn, to prompt the nation’s productivity and economic efficiency. Therefore, they do not seem to have curbed economic growth. Classification-JEL: C22,F32,O1 Keywords: Current account sustainability, economic development, Italy, unit root tests, Granger causality;

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    File URL: http://www.recent.unimore.it/wp/RECent-wp92.pdf
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    Paper provided by University of Modena and Reggio E., Dept. of Economics "Marco Biagi" in its series Center for Economic Research (RECent) with number 092.

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    Length: pages 28
    Date of creation: Sep 2013
    Date of revision:
    Handle: RePEc:mod:recent:092
    Contact details of provider: Web page: http://www.recent.unimore.it/

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    1. Gianpaolo Rossini & Paolo Zanghieri, 2009. "Current account composition and sustainability of external debt," Applied Economics, Taylor & Francis Journals, vol. 41(5), pages 677-683.
    2. Chen, Shyh-Wei, 2011. "Current account deficits and sustainability: Evidence from the OECD countries," Economic Modelling, Elsevier, vol. 28(4), pages 1455-1464, July.
    3. Granger, C. W. J., 1988. "Some recent development in a concept of causality," Journal of Econometrics, Elsevier, vol. 39(1-2), pages 199-211.
    4. Mark J. Holmes & Theodore Panagiotidis & Abhijit Sharma, 2007. "The sustainability of India’S current account," Discussion Paper Series 2007_05, Department of Economics, University of Macedonia, revised Dec 2007.
    5. Kwiatkowski, D. & Phillips, P.C.B. & Schmidt, P., 1990. "Testing the Null Hypothesis of Stationarity Against the Alternative of Unit Root : How Sure are we that Economic Time Series have a Unit Root?," Papers 8905, Michigan State - Econometrics and Economic Theory.
    6. Mark J. Holmes, 2006. "Do Latin American Countries Have an Incentive to Default on Their External Debts?: A Perspective Based on Long-Run Current Account Behavior," Emerging Markets Finance and Trade, M.E. Sharpe, Inc., vol. 42(1), pages 33-49, February.
    7. Barbara Pistoresi & Alberto Rinaldi, 2010. "Exports,growth and causality. New evidence on Italy: 1863-2004," Department of Economics 0633, University of Modena and Reggio E., Faculty of Economics "Marco Biagi".
    8. Johansen, Soren, 1991. "Estimation and Hypothesis Testing of Cointegration Vectors in Gaussian Vector Autoregressive Models," Econometrica, Econometric Society, vol. 59(6), pages 1551-80, November.
    9. Ciccarelli, Carlo & Fenoaltea, Stefano, 2007. "Business fluctuations in Italy, 1861-1913: The new evidence," Explorations in Economic History, Elsevier, vol. 44(3), pages 432-451, July.
    10. Stephen Broadberry & Claire Giordano & Francesco Zollino, 2011. "A Sectoral Analysis of Italy's Development, 1861-2011," Quaderni di storia economica (Economic History Working Papers) 20, Bank of Italy, Economic Research and International Relations Area.
    11. repec:bdi:workqs:qse_09 is not listed on IDEAS
    12. repec:cup:cbooks:9781107658080 is not listed on IDEAS
    13. Broadberry, Stephen & Giordano, Claire & Zollino, Francesco, 2011. "A Sectoral Analysis of Italy's Development: 1861 -2010," CAGE Online Working Paper Series 62, Competitive Advantage in the Global Economy (CAGE).
    14. Hakkio, Craig S & Rush, Mark, 1991. "Is the Budget Deficit "Too Large?"," Economic Inquiry, Western Economic Association International, vol. 29(3), pages 429-45, July.
    15. Mark J. Holmes, 2006. "How Sustainable Are Oecd Current Account Balances In The Long Run?," Manchester School, University of Manchester, vol. 74(5), pages 626-643, 09.
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