Long-run relationship between exports and imports: current account sustainability tests for the EU

António Afonso, Florence Huart, João Tovar Jalles, Piotr Stanek

Research output: Contribution to journalArticle

Abstract

We assess the sustainability of external imbalances for EU countries using panel stationarity tests of Current Account (CA) balance-to-GDP ratios and panel cointegration of exports and imports of goods and services, for the period 1970Q1–2015Q4. We find that: i) the country panel is non-stationary; ii) cross-sectional dependence plays an important role; iii) there is non-stationarity of the CA, imports, and exports with cross-sectional panel dependence and multiple structural breaks; iv) however, there is a stable long-run relationship between exports and imports in the panel. Hence, trade imbalances can be less unsustainable but this is not sufficient to make current account imbalances sustainable.

Original languageEnglish
Pages (from-to)155-170
JournalPortuguese Economic Journal
Volume19
Issue number2
DOIs
Publication statusPublished - May 2020

Keywords

  • Cointegration
  • Current account
  • Exports
  • Imports
  • Unit roots

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