Italy's current account sustainability: a long run perspective, 1861-2000

This paper analyzes the sustainability of Italy’s current accounts from 1861 to 2000. →hether or not
we find empirical support to sustainability depends on the statistical condition of stationarity of the
current account series. Non stationarity of the current accounts implies the economy has violated its
intertemporal budget constraint. Unit root tests to study the stationarity of Italy’s current accounts
suggest that in the long run (1861 to 2000) Italy’s external position was sustainable: the Italian
economy seems to have used the external deficits (surpluses) to smooth its aggregate consumption.
The persistent current account deficits in the shorter 1861-1913 period were generated by foreign
capital inflows that allowed investment to rise and, in turn, to prompt the nation’s productivity and
economic efficiency. Therefore, they do not seem to have curbed economic growth.