Current Account Sustainability in Emerging Markets: An Analysis with Linear and Nonlinear Panel Unit Root Tests

Abstract

This study examines the sustainability of current account deficits of eight emerging market economies, namely Brazil, Colombia, Czech Republic, Hungary, Indonesia, Peru, Russia and South Africa, over the period of 1996Q1-2009Q4 by employing linear and nonlinear panel unit root tests along with sequential panel selection method. While the results of the linear panel unit root test give evidence of the stationarity for the current accounts of Russia and Indonesia, the nonlinear panel unit root test indicates that only the current account of Indonesia is stationary. In this respect, the main contribution of the paper to related literature is to indicate the importance of distinguishing the linear and nonlinear adjustment processes in examining the current account sustainability.