Is there an innovation effect on current account? A case for European countries

ABSTRACT

The aim of this article is to find out whether there is an innovation effect on the current account, and if there is one then to determine its significance. The study is carried out for the current accounts of European countries. Innovation is tested together with some other factors as control variables in order to estimate and compare its role in the determination process of the current account. The results indicate that innovation has quite a significant influence on the current accounts of European countries, and the form of the relationship between innovation and current account is non-linear. Moreover, the impact of innovation is stronger for countries at higher levels of innovation, but the growth rate of its average marginal effect diminishes through its increasing levels.

KEYWORDS:

• Innovation
• current account balance
• European countries
• panel data analysis

JEL CLASSIFICATION:

• C23
• F19
• O30
• O52

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

¹ The results of normality and other test results in the following sections are available upon request.

² See Appendix.