Working Paper: CEPR ID: DP9990
Authors: Elisabeth Beusch; Barbara D'Beli; Andreas M. Fischer; Pinar Yesin
Abstract: Merchanting is goods trade that does not cross the border of the firm's country of residence. Merchanting grew strongly in the last decade in several European economies and has become an important determinant of these countries' current account. Because merchanting firms reinvest their earnings abroad to expand their international activities, this practice raises national savings in the home country without increasing domestic investment. This results in a larger current account surplus. To show the empirical links between merchanting and the current account balance, two exercises are performed in this paper using a sample of 53 countries during 1980-2011. The first exercise estimates the savings impact of merchanting countries in empirical models of the medium-term current account. The second exercise shows that merchanting's impact on the country's current account is sensitive to firm mobility.
Keywords: current account; adjustment; industry dynamics; merchanting
JEL Codes: F10; F20; F32
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| merchanting (M31) | current account-to-GDP ratio (F32) |
| merchanting (M31) | national savings (D14) |
| current account balance (F32) | savings-investment gap (E22) |
| firm relocation (R30) | current account adjustments (F32) |
| firm mobility (L10) | current account balance (F32) |
| merchanting firms (L81) | current account surplus (F32) |