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

Roman Stöllinger

No 134, wiiw Working Papers from The Vienna Institute for International Economic Studies, wiiw

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.

Keywords: current account; tradability index; tradable goods; structural change; value added exports (search for similar items in EconPapers)
JEL-codes: F10 F14 F32 F41 (search for similar items in EconPapers)
Pages: 54 pages including 15 Tables and 3 Figures
Date: 2017-01
New Economics Papers: this item is included in nep-acc, nep-eec, nep-opm and nep-tid
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