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Tradability of output and the current account in Europe

Roman Stöllinger ()

International Economics and Economic Policy, 2020, vol. 17, issue 1, No 5, 167-218

Abstract: Abstract This paper investigates empirically the relationship between specialisation in the production of tradable output and the current account balance. According to the ‘tradability hypothesis’ that is examined, countries that specialise in highly tradable sectors tend to run current account surpluses while countries with dominant non-tradable sectors risk running current account deficits. In order to test this hypothesis 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 in favour of the tradability hypothesis. 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)
Date: 2020
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DOI: 10.1007/s10368-019-00449-y

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