Monday 24 October 2011

Were the last 10 years different?

Via facebook, I got to this post by the founder of The Portuguese Economy blog, Pedro Lains. I am not sure I understood everything Pedro wrote. But I think that Pedro is arguing that Portugal has always been dependent on foreign financing, so there is nothing new with the current crisis.

I agree with the first part of this sentence, and the mechanics of how a country can run a current account deficit for centuries is part of my lecture notes, where Portugal and Canada are the two examples that I use. But I don't understand the second one.

Below is a figure of the current account divided by GDP since 1953, split in 1995, when there was a change in the source of the data (before 1995, series longas para a economia portuguesa, afterwards Pordata). Also plotted is a horizontal line with the average current account deficit of the last 10 years (-9.8%).

The pattern of deficits may not be new, but the size and duration seem quite unusual to me.

Update: Here is the picture, subtracting transfers from the current account.


  1. Hi Ricardo,
    It's easy: just try to subtract remittances from your deficit before 1973 (and capital imports or eu transfers thereafter). That was the point. But I may be wrong...

  2. Thank you, Pedro. Reading back your post, that makes perfect sense: I am sorry I missed it to start with.
    Above is the picture taking transfers out. I still think that the last 10 years stand out, but it is not as clear as the previous current account plot.

  3. Pedro,
    Also, as a post-scriptum, made in public to try to be more effective: you should feel encouraged to post some of these things here on top of your personal blog. From reading your blog this afternoon, there were several posts that could have led to a useful, and fun, debate here. I picked on just the more recent one.

  4. Thanks! And thanks for the figures. I haven't posted here recently because I am really worried with what the government is doing and spelling it out in Portuguese. I am sure the Prime Minister is being told only half of the story. If only some of us could call him to tell about the flip side(just kidding :-))
    Best, P

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