F10 - Trade: GeneralReturn

Over the last two decades, the current accounts in the European Union (EU) have diverged substantially. This divergence has raised concerns about the sustainability of the core countries' current account surpluses since the peripheral countries' financing of their significantly rising levels of current deficits depends on them. In this study, by applying both linear and nonlinear unit root tests and taking into account structural breaks in the data-generating process, we examine the current account sustainability of the main core countries with large external surpluses. We find that the current accounts of Austria, Denmark and Germany are not on sustainable paths, which suggests that the core economies might not continue to run surpluses to finance the peripheral countries' external deficits. The results of this study imply that the policymakers in peripheral countries might take proactive measures against possible borrowing problems and capital outflow risk in the future.

In this paper, the export demand and supply of German manufacturing industry is estimated for the period 1993 to 2005. The Johansen procedure (1991, 1994) is applied to estimate the long-run relationship in a VECM. Special attention is paid to the development of the German export prices being exposed to the competitive environment of fast growing countries like Hungary, the Czech Republic and Poland. Since they offer similar high-technology products on the international export markets and are gaining the market share, German export prices are under downward pressure. The results show that German export prices grow at a slower pace than that of the competitors and that they are negatively influenced by the growing market share of the CEECs. On the export demand side, the empirical picture corresponds to the theoretical one displaying a less unity income elasticity of demand indicating the decreasing market share for German manufactures in the long run.