Revisiting the factors behind European external imbalances

Carlos A. Carrasco, Adrian Hernandez-Del-Valle

Research output: Contribution to journalArticle

2 Citations (Scopus)

Abstract

© 2017-Center for Economic Integration, Sejong Institution, Sejong University, All Rights Reserved. In this paper, we develop four hypotheses for the origins of European imbalances in the context of the European economic integration process. To test the validity of our hypotheses for Germany and Spain, we implement an Autoregressive Distributed Lag bounds testing approach. According to our results, in the German case, economic and financial integration and non-price competitiveness have played a key role in the evolution of the external balance, whilst for Spain, the external balance is related to catching-up. In addition, there is no evidence of a long-run relationship between public finance and external imbalances. We derive important policy implications. On the one hand, deficit countries should ensure that the capital inflows from abroad are allocated to industries with high-added value. On the other hand, surplus countries require the implementation of an expansive economic policy, to lessen the burden of deficit countries when trying to address external imbalances.
Original languageEnglish
Pages (from-to)324-357
Number of pages34
JournalJournal of Economic Integration
DOIs
Publication statusPublished - 1 Jun 2017

Fingerprint

Factors
Economic integration
External imbalances
External balance
Spain
Distributed lag
Burden
Bounds testing
Germany
Financial integration
Capital inflows
Added value
Long-run relationship
Imbalance
Public finance
Economic policy
Competitiveness
Industry
Policy implications
Catching-up

All Science Journal Classification (ASJC) codes

  • Economics, Econometrics and Finance(all)

Cite this

@article{ae6592ae78f54ebbb99b898fb75a6c9e,
title = "Revisiting the factors behind European external imbalances",
abstract = "{\circledC} 2017-Center for Economic Integration, Sejong Institution, Sejong University, All Rights Reserved. In this paper, we develop four hypotheses for the origins of European imbalances in the context of the European economic integration process. To test the validity of our hypotheses for Germany and Spain, we implement an Autoregressive Distributed Lag bounds testing approach. According to our results, in the German case, economic and financial integration and non-price competitiveness have played a key role in the evolution of the external balance, whilst for Spain, the external balance is related to catching-up. In addition, there is no evidence of a long-run relationship between public finance and external imbalances. We derive important policy implications. On the one hand, deficit countries should ensure that the capital inflows from abroad are allocated to industries with high-added value. On the other hand, surplus countries require the implementation of an expansive economic policy, to lessen the burden of deficit countries when trying to address external imbalances.",
author = "Carrasco, {Carlos A.} and Adrian Hernandez-Del-Valle",
year = "2017",
month = "6",
day = "1",
doi = "10.11130/jei.2017.32.2.324",
language = "English",
pages = "324--357",
journal = "Journal of Economic Integration",
issn = "1225-651X",
publisher = "Sejong University",

}

Revisiting the factors behind European external imbalances. / Carrasco, Carlos A.; Hernandez-Del-Valle, Adrian.

In: Journal of Economic Integration, 01.06.2017, p. 324-357.

Research output: Contribution to journalArticle

TY - JOUR

T1 - Revisiting the factors behind European external imbalances

AU - Carrasco, Carlos A.

AU - Hernandez-Del-Valle, Adrian

PY - 2017/6/1

Y1 - 2017/6/1

N2 - © 2017-Center for Economic Integration, Sejong Institution, Sejong University, All Rights Reserved. In this paper, we develop four hypotheses for the origins of European imbalances in the context of the European economic integration process. To test the validity of our hypotheses for Germany and Spain, we implement an Autoregressive Distributed Lag bounds testing approach. According to our results, in the German case, economic and financial integration and non-price competitiveness have played a key role in the evolution of the external balance, whilst for Spain, the external balance is related to catching-up. In addition, there is no evidence of a long-run relationship between public finance and external imbalances. We derive important policy implications. On the one hand, deficit countries should ensure that the capital inflows from abroad are allocated to industries with high-added value. On the other hand, surplus countries require the implementation of an expansive economic policy, to lessen the burden of deficit countries when trying to address external imbalances.

AB - © 2017-Center for Economic Integration, Sejong Institution, Sejong University, All Rights Reserved. In this paper, we develop four hypotheses for the origins of European imbalances in the context of the European economic integration process. To test the validity of our hypotheses for Germany and Spain, we implement an Autoregressive Distributed Lag bounds testing approach. According to our results, in the German case, economic and financial integration and non-price competitiveness have played a key role in the evolution of the external balance, whilst for Spain, the external balance is related to catching-up. In addition, there is no evidence of a long-run relationship between public finance and external imbalances. We derive important policy implications. On the one hand, deficit countries should ensure that the capital inflows from abroad are allocated to industries with high-added value. On the other hand, surplus countries require the implementation of an expansive economic policy, to lessen the burden of deficit countries when trying to address external imbalances.

U2 - 10.11130/jei.2017.32.2.324

DO - 10.11130/jei.2017.32.2.324

M3 - Article

SP - 324

EP - 357

JO - Journal of Economic Integration

JF - Journal of Economic Integration

SN - 1225-651X

ER -