Determinants of the Current Account Balance in the DRC: ARDL Approach to Cointegration

Abstract

The aim of this study is to identify the factors underlying the behavior of the current account balance in the Democratic Republic of Congo (DRC). By exploring the DRC's economicfinancial environment, the study identified a number of relevant variables whose behavior should have a determining influence on the behavior of the current account. These are the inflation rate, the real GDP growth rate, the real exchange rate, the demographic dependency ratio and the fiscal balance. To achieve our objective, we applied the intertemporal current account approach and the ARDL Approach to cointegration annual macroeconomic data of the Congolese economy covering the period 1982-2017. The results of our estimations reveal the existence of a cointegration relationship between the current account balance and all the aforementioned variables. Moreover, the inflation rate, the demographic dependency ratio and the budget balance exert a negative and significant influence on the current account balance. On the other hand, the exchange rate and the real interest rate have a negative but insignificant effect on the current account balance. The real GDP growth rate was found to have a positive and significant influence on the current account balance.