Current Account Composition and Sustainability of External Debt

If an economy runs a current account (CA) deficit and finances it via a corresponding net inflow of equity capital the external debt (ED) does not change, i.e.: the CA deficit does not add to ED. This is no paradox. It simply comes from the definition of CA deficit and ED and points to different degrees of sustainability of CA deficits according to the way they are financed and to the composition of the CA itself. By the evaluation of the determinants of interest rates spreads vis à vis US lending rates we assess the sustainability of CA deficits. We find that FDI net inflows (proxy of equity capital) allow emerging economies to sustain larger CA imbalances with respect to CA deficits financed by inflows of more liquid assets. Equity capital is a way to finance the CA. It does not contribute to the ED and it affects the solvency assessment of a country.Equity capital, FDI, CA deficit, external debt

Letter to the Editor regarding "Collaborative study for the detection of toxic compounds in shellfish extracts using cell-based assays. Part I: screening strategy and pre-validation study with lipophilic marine toxins" and "Part II: application to shellfish extracts spiked with lipophilic marine toxins."

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Saving and Investment in Euroland, the EU and the enlarged EU

The Feldstein-Horioka puzzle has been recently included among the six major puzzles of international economics. It is a paradox that belongs to the large group of home biases that have become stylized facts. We investigate the F-H puzzle according to different definitions of Europe and by introducing a more suitable investment variable that results after netting out FDI. We find that the F-H co¢cient decreases in all cases in whcih we adopt the correct investment definition. Over time we see a decrease of the F-H coe¢cient during the 1980’s and an increase over the 1990’s as a proof that the Maastricht Treaty discipline has made current account targeting biting. This does not happen for opting out and Eastern Europe countries

Current account composition and sustainability of external debt (I)

If an economy runs a current account (CA) deficit and finances it via a corresponding net inflow of equity capital (belonging to foreign direct investment (FDI) or to portfolio investment) the external debt (ED) of the country does not change, i.e.: the CA deficit does not add to ED. This is no paradox and simply comes from the definition of CA deficit and external debt. Nonetheless, the implication of this is rather relevant since it points to different degrees of sustainability of CA deficits according to the way they are financed and to the composition of the CA itself. By the evaluation of the determinants of interest rates spreads of a country vis à vis US lending rates we assess the sustainability of CA deficits and we find that the extent of FDI net inflows (proxy of equity capital) allow emerging economies to sustain imbalances which are larger with respect to the case in which the CA deficit is financed by inflows of other more liquid assets. In other words the differential treatment of equity capital as a way of financing the CA, but not contributing to to the ED of a country, is no fiction and affects the solvency assessment of a country. This is a first result of a larger research on the effects of the composition of the CA on the solvency of an economy

Country size and the price of tradeables: is there any relationship beyond wishful thinking?

The existence of transport costs among countries makes prices of tradables diverge. When the market structure is a differentiated oligopoly the prices of tradables increase as a country get larger and/or richer. In a framework of economies of scale-di¤erentiation-monopolistic competition a less definite result can be found, since it all depends on the level of transport costs and the degree of openess. First we go through some theoretical aspects of these different approaches. Then, we provide empirical tests that may be able to discriminate among the two competing approaches. The results show that a relationship exists between size, percapita incomes and prices of tradables in countries separated by some transport cost. As a country is larger prices are lower, yet they become higher if percapita income is higher