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Tradability of Output and the Current Account: An Empirical Investigation for Europe

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Abstract

We put forward the hypothesis that increasing specialisation in the production of non-tradable output has a negative impact on the current account balance. This tradability hypothesis is directly derived from a two-sector inter-temporal current account model. To test it empirically we develop a value-added based tradability index which captures the tradability of a country’s output. Applied to a large sample of European countries, our empirical model provides strong evidence for a positive relationship between the current account balance and the tradability index. The main policy implication is that the anxieties about ‘de-industrialisation’ in large parts of Europe seem justified with a view to growing external imbalances.

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  • Roman Stöllinger, 2017. "Tradability of Output and the Current Account: An Empirical Investigation for Europe," wiiw Working Papers 134, The Vienna Institute for International Economic Studies, wiiw.
  • Handle: RePEc:wii:wpaper:134
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    More about this item

    Keywords

    current account; tradability index; tradable goods; structural change; value added exports;

    JEL classification:

    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F10 - International Economics - - Trade - - - General
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade

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