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


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.

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Fig. 1
Fig. 2


  1. 1.

    The relation between global external disequilibria and the financial crisis is discussed at length in Obstfeld and Rogoff (2010).

  2. 2.

    Source: OECD data. The Appendix provides more detailed descriptive statistics for the current account, export and import series.

  3. 3.

    This has been done by Afonso et al. (2019) following a methodology proposed by Milesi-Ferretti and Razin (1996).

  4. 4.

    Austria, Belgium, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Luxembourg, Netherlands, Poland, Portugal, Slovakia, Slovenia, Spain, Sweden, UK.

  5. 5.

    The intertemporal model of the current account originates in the works of Sachs (1981, 1982), Obstfeld (1982), as well as Svensson and Razin (1983).

  6. 6.

    Available on request are the results of two different first generation panel unit root tests, namely the Im et al. (2003) test (IPS) as well as the Maddala and Wu (1999) test (MW).

  7. 7.

    CBL (2005) suggested the specified maximum number of structural breaks to be five. We compute the finite sample critical values using Monte Carlo simulations (20,000 replications).

  8. 8.

    See Anselin and Bera (1998) for cross-sectional data and Baltagi et al. (2003) for panel data.

  9. 9.

    See Chudik et al. (2011) for exact definitions of weak and strong dependence.

  10. 10.

    Since we have non-stationarity present in the panel the deterministic component used in test statistics is the constant as we first difference relevant series.

  11. 11.

    We also applied Pesaran’s (2004) CD test to the residuals of this Pedroni (2004) panel cointegration test. We obtained a CD test statistic of 23.07 which is statistically significant at the 1% level. We thank an anonymous referee for this suggestion.


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We thank two anonymous referees for useful comments and suggestions on an earlier version of the paper. This work was supported by the FCT (Fundação para a Ciência e a Tecnologia) [grant number UID/ECO/00436/2019] and the resources granted to the Faculty of Economics and International Relations of the Cracow University of Economics as a part of the subsidy for the maintenance of the research potential. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official view or position of the Portugal Public Finance Council. Any remaining errors are the authors’ sole responsibility.

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Correspondence to António Afonso.

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Table 5 Descriptive statistics by country
Table 6 Second Generation Panel Unit Root Tests. Pesaran (2007) Panel Unit Root Test (CIPS)
Table 7 Pedroni (2004) panel cointegration tests

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Afonso, A., Huart, F., Jalles, J.T. et al. Long-run relationship between exports and imports: current account sustainability tests for the EU. Port Econ J (2019). https://doi.org/10.1007/s10258-019-00168-x

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

JEL Classification

  • C23
  • F32
  • F41