Abstract
This paper explores the reasons why regional economics and policymaking do not focus on the regional balance of payments, although relevant imbalances – comparing with countries – may arise. The main purpose of the paper is, on one hand, to gauge the importance of these external imbalances in regional economies, with that concept being confined to the trade (goods and services) account. Notwithstanding the limited data available, empirical evidence for EU regions is put forward to supporting the idea that regions meet more frequently trade imbalances of relevant size than those faced by countries. Discussion centers as well on why regions can run wider trade deficits than nations and it is argued that as regions avoid sustainability constraints they may even benefit from those imbalances.
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A first version of this paper was developed during a short term stay in REAL – Regional Economics Applications Laboratory, at the University of Illinois at Urbana-Champaign, in May 2005. Financial support from Fundação Calouste Gulbenkian, Lisbon, Portugal, and the hospitality of REAL are gratefully acknowledged. The author would like to thank Geoffrey Hewings as well for his stimulus and helpful comments. The contribution of two anonymous referees is also acknowledged. The usual disclaimer applies.