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

This paper analyzes the sustainability of Italy\u2019s current accounts from 1861 to 2000. Whether 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\u2019s current accounts suggest that in the long run (1861 to 2000) Italy\u2019s 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\u2019s productivity and economic efficiency. Therefore, they do not seem to have curbed economic growth