An empirical analysis of the determinants of current account dynamics in selected Sub-Saharan African economies

Abstract

This paper examines the dynamics of current account balance with particular focus on 14 economies in Sub-Saharan Africa over the period from 1990 to 2015. We estimated relevant panel data estimation techniques such as the Pooled OLS, FGLS, LSDV and GMM-IV. Estimates from the GMM-IV relate quite well with those from other estimators. We found significant moderate persistence in the transmission of shocks on current account imbalance over a period lag. The index for financial reforms, trade openness and gross savings are fundamental factors that improve the current account balance of our sampled economies. Contrarily, the degree of openness, inflation rate, terms of trade, growth of GDP per capita, domestic investment and external debt stock are factors that widen current account deficit in these economies. However, the real effective exchange rate does not influence current account thus, supporting our result that current account imbalance could be persistent. We would express optimism that current account deficits could be reversed following policies that improve existing levels of financial development and boldly address critical domestic issues such as enforcing fiscal discipline; enthrone import substitution strategy and lower relative price differentials.