Is there a link between the public deficit and the trade deficit in the Euro area? New evidence from panel data (original) (raw)

2017

Abstract

The aim of this paper is to empirically explore the linkage between the public deficit and the trade deficit in the case of euro area member states for the period 19902015. The empirical studies conducted until now highlight diverging results on this relationship for both the developed and developing countries. Most of them have used time series data rather than panel data. Because it is commonly accepted that time series models may have lower statistical power than panel data models (Campbell and Perron, 1991) as they don’t add the cross-sectional dimension to the time series dimension to exploit additional information the paper works with panel models rather than with time series models. More precisely, I apply recent panel data techniques such as the pooled mean group estimator of Pesaran, Shin and Smith (1999), which accounts for heterogeneous effects across countries and for the non-stationarity of variables. By using these methods, I assess the validity of two opposite views: ...

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