The sustainability of trade accounts of the G-7 countries

Abstract

This article has examined the sustainability of the trade accounts of the G-7 countries by analysing the long-run equilibrium between exports and imports. We applied the techniques of the recently developed nonstationary panel data analysis and found that the trade accounts of the G-7 countries are very likely to be nonstationary variables. This implies that trade accounts are not sustainable for the G-7 countries. Therefore, some appropriate policies must be implemented to prevent trade imbalances from increasing.

Intertemporal sustainability of current account imbalances: New evidence from the OECD countries

“…The dominant support for cointegration between trade flows reinforces the intertemporal view, which suggests that the CADs are only short‐run phenomena and are sustainable in the long run. The results are consistent with several studies supporting the sustainability of CADs and the validity of IBC (Husted, ; Sawada, ; Wu, Fountas et al, ; Apergis et al, ; Wu, Chen et al, ; Arize, ; Irandoust & Ericsson, ; Herzer & Nowak‐Lehmann, ), but are inconsistent with those studies that suggest the unsustainability of CADs and the violation of IBC (Otto, ; Wickens & Uctum, ; Tang, ; Hamori, ; Hashiguchi & Hamori, ).…”

“…A number of studies have, on the contrary, shown the nonstationarity of CA or the lack of cointegration between exports and imports, thus suggesting the unsustainability of CADs and the violation of IBC. The studies supporting these findings include Tang () for Japan (1975:1–2004:11), Hamori () for G‐7 countries (1960–2005) and Hashiguchi and Hamori () for 37 countries in the Sub‐Saharan African region (1980–2006). Yet another set of studies has provided mixed evidence on the long‐run relationship between exports and imports and the implied sustainability of CADs.…”

“…Many of the studies have assumed linear dynamics and have estimated long-run models without allowing structural breaks in the equilibrium relationship and model parameters (Sawada, 1994;Leachman & Thorpe, 1998;Wu, Chen et al, 2001;Irandoust & Ericsson, 2004;Holmes, 2006;Hamori, 2009;Hashiguchi & Hamori, 2012). The structural breaks are known to reduce the power of cointegration tests and to weaken the robustness of the statistical evidence obtained from one-regime models with time-invariant parameters (Gregory, Nason, & Watt, 1996;Mann, 2002;Singh, 2014).…”

An analysis of the trade balance for OECD countries using periodic integration and cointegration

“…Some previous empirical studies, such as Husted (1992), Arize (2002) and, more recently, Hamori (2009) have dealt with the long-run relationship between exports and imports using the cointegration methodology. Although the majority of the empirical evidence is based on annual or quarterly data and the latter can be a¤ected by seasonal e¤ects, to the best of our knowledge, the empirical literature has neglected the presence of seasonal non-stationary components.…”

The sustainability of trade balances in sub-Saharan Africa: panel cointegration tests with cross-section dependence

“…However, it is well known that these tests lack power with small samples. Wu (2000) and Hamori (2009) Despite the large number of studies on the sustainability of trade balance, little attention has been given to the Sub-Saharan African region. Among the few scholars who have discussed it, Narayan and Narayan (2005) Furthermore, a problem arises from the fact that the above studies assume that time series data are cross-sectionally independent among countries.…”