Abstract
This paper examines two issues, namely, whether the current account deficit (CAD) is sustainable, and the degree of sustainability for a panel consisting of 129 countries over the period 1981–2013. To this end, we investigate the relationship between exports and imports for various income and region categories. Our finding from the pooled mean group estimator suggests that CAD is “weakly” sustainable in most of the country groups. This implies that sustainable current account is consistent with the sustainability of external debts. Further, the adjustment coefficient is found to be rather low for all the country groups. This indicates that the speed of convergence toward the long-run equilibrium in the event of short-run disturbances is faster. Finally, we discuss policy implications of our findings.
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