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The impact of diverging economic structure on current account imbalances in the euro area

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  • Ehmer, Philipp

Abstract

The measures implemented to reduce current account deficits within several euro area econ-omies are aimed at boosting competitiveness to raise exports. Due to low industrial capacities in Greece, Portugal and Spain, for instance, it is questionable, however, whether exports can contribute much to the required turnaround of the current account. The existing literature on current account determinants ignores the impact of economic structure. However, as industrial goods are more tradable than services, a specialisation on manufacturing industries should ceteris paribus lead to an improved current account. The empirical analysis of this paper con-firms a significant impact of the sectoral focus on the current account within the euro area. Hence, the turnaround in crisis-hit economies has to be accomplished mostly through imports. As can be observed, this brings about severe recessions - more severe than in manufacturing-based economies which use the exports channel to a larger extent. Within a currency union where there is no depreciation which facilitates the adjustment economies should aim at har-monising their economic structure regarding export capacity.

Suggested Citation

  • Ehmer, Philipp, 2014. "The impact of diverging economic structure on current account imbalances in the euro area," Wittener Diskussionspapiere zu alten und neuen Fragen der Wirtschaftswissenschaft 27/2014, Witten/Herdecke University, Faculty of Management and Economics.
  • Handle: RePEc:zbw:uwhdps:272014
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    References listed on IDEAS

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    1. Khaled Hussein & A. P. Thirlwall, 1999. "Explaining differences in the domestic savings ratio across countries: A panel data study," Journal of Development Studies, Taylor & Francis Journals, vol. 36(1), pages 31-52.
    2. repec:pri:indrel:dsp01qn59q398s is not listed on IDEAS
    3. Algieri, Bernardina & Bracke, Thierry, 2007. "Patterns of current account adjustment: insights from past experience," Working Paper Series 762, European Central Bank.
    4. Bernardina Algieri & Thierry Bracke, 2007. "Patterns of Current Account Adjustment – Insights from Past Experience," CESifo Working Paper Series 2029, CESifo.
    5. Trautwein, Hans-Michael, 2005. "Structural aspects of monetary integration: a global perspective," Structural Change and Economic Dynamics, Elsevier, vol. 16(1), pages 1-6, March.
    6. Anthony P. Thirwall, 1972. "Inflation and the Savings Ration Across Countries," Working Papers 414, Princeton University, Department of Economics, Industrial Relations Section..
    Full references (including those not matched with items on IDEAS)

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    Cited by:

    1. 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.
    2. Roman Stöllinger, 2020. "Tradability of output and the current account in Europe," International Economics and Economic Policy, Springer, vol. 17(1), pages 167-218, February.

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    More about this item

    Keywords

    euro area; current account imbalances; current account determinants; savings rate; economic structure; sectoral focus; optimum currency area;
    All these keywords.

    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • 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
    • L16 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Industrial Organization and Macroeconomics; Macroeconomic Industrial Structure
    • O14 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Industrialization; Manufacturing and Service Industries; Choice of Technology

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