Sustainability Of Current Account Deficits Research Articles

On the Long-run Sustainability of Current Account Deficits in India: Some Insights from Linear and Non-linear Cointegration Tests

On the Long-run Sustainability of Current Account Deficits in India: Some Insights from Linear and Non-linear Cointegration Tests

Sustainability of Current Account Deficits in MINT Countries: Time Series Analysis

With the globalization process, there have been significant increases in international trade and international capital movements. In this context, international performance indicators of countries have come to the fore. The current account deficit is important in terms of expressing the external balances of countries. Today, the sustainability of the current account deficit, not its existence, is considered as a performance indicator. MINT countries are defined as countries with young populations and high development potential in terms of natural resources and geographical location. In this study, the sustainability of the current account deficits of MINT countries was investigated. The data range of the study was determined as 1981-2021. The current account deficit/GDP ratio of the countries and the export and import values of each country were used as the data set. As an econometric method in the study; From time series analyses, unit root tests, variance decomposition and cointegration tests were applied. According to the findings, the current account deficit was found to be unsustainable for the Indonesian economy. It has been determined that current account deficits are sustainable in the economies of Mexico, Nigeria and Türkiye. However, it has been determined that the sustainability of the current account deficit in Nigeria is weak. Within the framework of the findings, the unique structural situations of each country are explained.

Sustainability of current account deficits in Nigeria: evidence from the asymmetric NARDL approach

Sustainability of current account deficits in Nigeria: evidence from the asymmetric NARDL approach

The Analysis of Current Account Deficit Sustainability with the Fractional Frequency Flexible Fourier Form Panel Cointegration Test

Cari açık sürdürülebilirliği, uluslararası alanda en çok tartışılan konulardan biridir. Ülkeler açısından en önemli politika hedefleri, iç ve dış dengenin birlikte sağlanmasıdır. Bu noktada, büyüme, istihdam ve fiyat istikrarı gibi konular iç dengenin sağlanması açısından önemli olmakla beraber yeterli değildir. Dış dengenin önemli göstergelerinden biri olan cari açığın sürdürülmesi, ekonomik performans göstergesi olarak kabul edilmektedir. Ülkeler açısından yüksek cari açığın varlığı, ekonominin dış şoklara karşı daha kırılgan hale gelmesine neden olmaktadır. Benzer şekilde ülkeler açısından cari açığın sürdürülemez olması, krizleri tetikleyen sinyaller olarak kabul edilmektedir. Bu açıdan cari hesap sürdürülebilirliği ekonomik istikrarın önemli öncüsü kabul edilmektedir. Konunun öneminden hareketle, 1965-2019 dönemi yıllık ihracat ve ithalat verileri, 14 Latin Amerika ülkesi için incelenmiştir. Çalışmanın, konuyu yeni bir yöntemle incelemesi bakımından, literatüre önemli katkı sağlaması beklenmektedir. Çalışmada eşbütünleşme analizine geçmeden önce değişkenlere birim kök incelemesi yapılmıştır. Yapılan birim kök incelemesi sonucunda, değişenlerin fark itibariyle durağan olduğu saptanmıştır. Daha sonra eşbütünleşme ilişkisi analizi yapılmıştır. Yapılan eşbütünleşme analizi sonucunda, eşbütünleşme ilişkisinin varlığı tespit edilmiştir. Uzun dönemli ilişki tespitinden sonra, katsayı tahminleri yapılmıştır. Buna göre, Bolivya, Kosta Rika, Ekvator, Meksika, Paraguay ve Peru’da cari açık güçlü formda sürdürülebilirken; Arjantin, Brezilya, Kolombiya, El Salvador, Guatemala, Honduras, Nikaragua ve Panama’da ise cari açığın zayıf formda sürdürülebilir olduğu ortaya konulmuştur.

ANALYSIS OF THE CURRENT ACCOUNT DEFICIT SUSTAINABILITY IN TURKEY

This paper examines the sustainability of current account deficit in Turkey with the help of an annual and a monthly data set covering the period 1923-2019 and 2008:1-2020:8, respectively. The data set is divided into subperiods and is implemented various traditional and breakpoint unit root tests, cointegration analysis and error correction models (ECM). The findings reveal that the export and import series are cointegrated for all of subperiods, and that the current account deficit is sustainable in Turkey in a weak form. This study employs a comprehensive approach by implementing miscellaneous econometric analysis on the data set to contribute the current literature on current account deficit in Turkey. As to our policy recommendation, in order to sustain it in strong form or close, reducing the share of imported inputs in the production, granting incentives to exporting firms and import substituted production should be encouraged.

Empirical Test of the Sustainability of Current Account Deficits in Nigeria

This paper examines sustainability of current account deficits in Nigeria, for the period 1980 to 2019. Using the framework of an intertemporal budget constrain, a current account sustainability equation is derived and the conditionality for establishing sustainability is ascertained. The empirical strategy applies the unit root test, the Engle Granger cointegration test and dynamic OLS (DOLS) regression approach for testing the sustainability of the current account. The study finds robust evidence showing stable long run equilibrium relationship between exports and imports. With respect to sustainability the study also shows evidence of weak sustainability especially as reported in the DOLS regression result. On the overall, the evidence from this study does not significantly deviate from extant studies in this strand of the literature.

La sostenibilidad de los desequilibrios en las balanzas por cuenta corriente de la eurozona

En este trabajo estudiamos los factores que determinan la sostenibilidad de los déficits por cuenta corriente en la eurozona y su vinculación con la crisis. Para ello, estimamos las ecuaciones de comercio exterior, donde se confirma el papel determinante de la elasticidad-renta, y, posteriormente, estimamos el crecimiento económico restringido por la balanza de pagos (Thirlwall) para compararlo con el crecimiento efectivo de cada país. Únicamente España, Gre-cia y Portugal mantuvieron, entre 2000 y 2007, crecimientos superiores a los consistentes con la restricción exterior. Aunque no sostenibles, sus déficits son diferentes ya que tienen raíz estructural en Grecia y Portugal.

Sustainability of current account balances in small states

This article applies the inter-temporal budget constraint framework and panel cointegration tests to examine the sustainability of current account deficits in 17 small states over the period 1995-2016. The findings show the existence of cointegration between real exports and real imports, but with the magnitude of the long-run coefficient being less than one, which support a “weak” form of current account sustainability in small states.

Effect of the Real Exchange Rate on the Sustainability of Current Account Deficits in Sub-Saharan African Countries

Sub-Saharan African countries run many current account deficits in the context of the new world economic order, namely globalization. The theoretical literature reveals that the real exchange rate improves the sustainability of the current account deficit, the effect of which may differ according to the type of exchange rate regime. Empirically, the authors are not unanimous on this issue. This paper analyses the effect of the real exchange rate on the sustainability of current account deficits in Sub-Saharan African countries over the period 1980-2016. Using a logit model applied to a panel of 38 countries and estimated using the maximum likelihood method, it appears that the depreciation of the real exchange rate has a positive effect on the sustainability of the current account deficit. This effect depends on the type of exchange regime. Under a floating exchange rate regime, the real exchange rate acts positively on the sustainability of the current account deficit when this rate is less than or equal to 250. On the other hand, under an intermediate exchange rate regime, the real exchange rate increases the sustainability of the current account deficit when the rate is between 275 and 600. In the case of the fixed exchange rate regime, the real exchange rate has a positive effect on the sustainability of the current account deficit if the rate is greater than or equal to 700. In the light of these results, the paper suggests to policymakers, the use of the real exchange rate to improve the sustainability of current account deficits. These policymakers should use real exchange rates below 250 for countries adopting a floating exchange rate regime, between 275 and 600 for the intermediate exchange rate regime, and greater than 700 for the fixed exchange rate regime.

Sustainability of Current Account Deficit in Turkey

Purpose: This study aims to examine the sustainability of the current account deficit in Turkey for the quarterly data between 2003 and 2018. Besides, some policy implications are made to ensure the sustainability of the current account deficit in Turkey's economy. Design/methodology/approach: The dynamics related to the sustainability of the current account deficit is analysed within the framework of the intertemporal budget constraint approach developed by Husted (1992). The long-term dynamics are empirically investigated using the Johansen cointegration test. Econometric analysis is also expanded within the framework of the Vector Error Model to reveal the short-term dynamics. Findings: The results of Johansen cointegration analysis suggest that current account income and expenses are integrated with the cointegrating coefficient less than 1, implying that Turkey has a weak form of current account deficit sustainability. Findings of the Vector Error Correction model confirm the results of long-run analysis and indicates that the deviations from the long-term equilibrium are corrected at a rate of 78% every quarter term. Research limitations/implications: The intertemporal budget constraint approach developed by Husted (1992) focuses on the equilibrium between current account income and expenses to analyse the sustainability of the foreign balance. However, the sustainability of the foreign deficit is also closely related to what kind of capital inflows is used to finance the foreign deficit. Therefore, the implications made regarding the sustainability of the current account deficit in Turkey based on the Husted model should be accepted with some reservations. Originality/value: Since external imbalances are a key challenge for most of the developing countries to provide full integration into the world economy, many empirical studies are examining the current account sustainability. The majority of these studies focus on the long-run dynamics of the current account imbalances. Unlike most of the previous studies, this paper also focuses on the short-run dynamics of the current account balance. Thus, the difference of this study from other studies stems from the examination of the dynamics of current account sustainability not only in the long term but also in the short term.

Sustainability of current account deficits: Evidence from Egypt using an asymmetric ARDL model

In this paper, we investigate the sustainability of the current account deficits using an asymmetric cointegration approach, with an application to Egypt. We assess the mean-reversion properties of the current account by examining the long-run relationship between real exports and real imports, plus interest payments on external debt. We use the asymmetric autoregressive distributed lag model to assess their long-run relationship and compare the results with those of the linear ARDL model. The results of the linear ARDL model suggest that there is no strong evidence to support the sustainability of the current account during the period of study. However, the results with the asymmetric model point toward the rejection of the null hypothesis of no cointegration between the two variables. Moreover, we reject the null hypothesis of no long-run asymmetry between the impacts of positive and negative shocks to imports on exports. Overall, our results suggest that the current account followed a mean-reverting nonlinear process during the study period.

Intertemporal sustainability of current account imbalances: New evidence from the OECD countries

AbstractThis study estimates the intertemporal model for the relationship between exports and imports and examines the sustainability of current account deficits (CADs) and the validity of intertemporal budget constraint for 24 Organisation for Economic Co‐operation and Development countries. The standard ordinary least squares (OLS)‐based two‐step Engle and Granger test, the cointegration regression Durbin–Watson (CRDW) test, and the Stock–Watson test performed on the one‐regime model with time‐invariant parameters and no structural break provide mixed support for the presence of cointegration between exports and imports. The recursive least squares‐based cumulative sum of recursive residuals (CUSUM) and the cumulative sum of squares of recursive residuals (CUSUMSQ) tests and the OLS‐based Andrews‐Quandt (AQ) and Andrews – Ploberger (AP) tests suggest the presence of structural breaks in the long‐run relationship between exports and imports for a number of countries. The end‐of‐sample new cointegration breakdown tests performed on the OLS, fully modified OLS, and full‐information maximum‐likelihood estimates of the model suggest the presence of cointegration between exports and imports for most countries. The dominant support for cointegration between trade flows points toward the sustainability of CADs and the validity of intertemporal budget constraint. The macroeconomic stabilization policies seem to have been effective in correcting the market failures and maintaining the steady‐state equilibrium relationship between trade flows in the sample countries. The findings of this study have important implications for empirical research. The structural breaks in the cointegrating vector could occur even over the short time periods and at any point in time. It is essentially important to assess the sustainability of the external position in the presence of long‐period as well as short‐period breaks in the cointegrating vector.

On the Sustainability of Current Account Deficits in Indonesia: Error Correction Mechanism Approach

On the Sustainability of Current Account Deficits in Indonesia: Error Correction Mechanism Approach

Current account sustainability: A non-linear comparative empirical overview

This study aims to examine the sustainability of current account deficits for Hungary, Poland, Czech Republic and Turkey over the period 1998Q1:2014Q2, with a special attention to the Turkish case, by applying the theoretical model of Steven Husted (1992). The main motive for the choice of time span is that the period comprises the outcomes of two important crises Turkish economy experienced in 2001 and 2008. The empirical testing procedure of the sustainability is twofold so as to be linear and non-linear. Both linear and non-linear test results provide evidence that the current account deficit is unsustainable for Turkey, Poland and Czech Republic. On the other hand, linear and non-linear test results lead to a conflicting evidence for Hungary. We conclude that there is a need to reduce the current account deficit for the countries examined. Otherwise, a sharp adjustment may be inevitable.

Sustainability of Current Account Deficits in the OECD Countries: Evidence from Panel Data Estimators

This study estimates the intertemporal model for the relationship between imports and exports and examines the sustainability of CADs and validity of IBC for a comprehensive set of 24 OECD countries. The balanced panel data model is estimated using several single-equation and system estimators to assess the robustness of results across methodologies and test statistics. The study finds that the numerical magnitude of the slope parameter of imports is close to unity consistently across estimators. The standard panel data estimators provide consistent support for the sustainability of CADs and validity of IBC. The optimal FMOLS and DOLS estimators cross-validate the evidence and reinforce the sustainability of CADs. The residual-based single-equation and the VAR-based system cointegration estimators provide consistent support for the long-run equilibrium relationship between imports and exports. The support for the sustainability of CADs suggests that the current account deficits are only short-run phenomena and are balanced by future surpluses. The macroeconomic stabilisation strategies seem to have been effective in correcting the market failures and maintaining the steady-state equilibrium relationship between the inflow and outflow of resources.

Financial Market Integration and the Mobility of Capital: Evidence from the OECD Countries

Abstract This study examines the long-run relationship between domestic saving and investment and takes a country-by-country account of the mobility of capital and integration of international financial markets. The analysis is carried out for a comprehensive set of 24 OECD countries. The study finds support for the cointegrating relationship between domestic saving and investment for a number of countries. The slope parameter of saving remains well above zero for most countries. The support for cointegration between domestic saving and investment suggests the sustainability of current account deficits and the solvency of intertemporal budget constraint. The degree of capital mobility and the integration of financial markets vary across countries. The reliance on domestic saving in the countries with low to moderate mobility of capital underlines the need to accelerate domestic saving to finance the accumulation of capital and keep the current account imbalances in sustainable bounds. The investment in th...

The Current Account Deficit Sustainability: An Empirical Investigation for Pakistan

The existence of large and persistent current account deficit is always viewed with great concerns, as it usually leads an economy to a state of insolvency due to building up excessive net foreign debt. As the current account deficit is a persistent feature of Pakistan’s economy, therefore, it becomes essential to empirically investigate, whether this deficit is sustainable or not. To this end, the present study has applied two alternative approaches, namely, the intertemporal approach to the current account and the intertemporal solvency approach, in order to get more convincing evidence on the sustainability issue in Pakistan using the time series data over the period 1960 to 2012. From the perspective of both the approaches, Pakistan’s current account deficit is on a sustainable path and the macroeconomic policies of the country remained effective in securing it from any external sector crisis. JEL Classification: C32, F32, F41 Keywords: Current Account Deficit, Intertemporal Budget Constraint, VAR Model, Cointegration

Are Current Account Deficits in the OECD Countries Sustainable? Robust Evidence from Time-Series Estimators

ABSTRACTThis study examines the sustainability of current account deficits (CADs) and validity of intertemporal budget constraint (IBC) for 24 OECD countries. While the OLSEG, ML system, and OLSGH estimates of the model do not provide support, the GMM, DOLS, and NLLS estimates provide consistent support for the sustainability of CADs across most countries. The estimates of the model with multiple structural breaks reinforce the sustainability of CADs. The results provide dominant support for the sustainability of CADs and validity of IBC across most countries. The CADs are only short-run phenomena and are balanced by future surpluses.

International Mobility of Capital in the United States: Robust Evidence from Time-Series Tests

AbstractThis study examines the relationship between domestic saving and investment and measures the international mobility of capital in the United States. The long-run model, “with” and “without” structural breaks, is estimated using several single-equation and system estimators to assess the robustness of results and take an exhaustive account of the methodological and measurement issues. The results provide dominant support for the long-run relationship between domestic saving and investment. The estimates of the slope parameter on saving above zero and the dominant support for cointegration between saving and investment across estimators vindicate the validity of intertemporal budget constraint and suggest the sustainability of current account deficits. The numerical magnitude of the slope parameter on saving is consistently low across estimators. The results showing the low slope parameter on saving resonate with the observed high mobility of capital. The estimates of the model with structural breaks reinforce the dominant support for the long-run relationship between domestic saving and investment. The inclusion of these structural breaks in the model generally reduces the numerical magnitude of the slope parameter on saving and suggests the high mobility of capital.

The structure and sustainability of current account deficit: Turkish evidence from regime switching

ABSTRACTThis study focuses on the current account deficit dynamics and sustainability, using data of the period between 1990:Q1 and 2014:Q2 in the context of Turkish economy. The main findings of the study can be put into two categories. The first category covers energy consumption, openness rate, gross domestic product, exchange rate and investments, which are the most important determinants of the current deficit. The second one asserts that sustainability is weak for Turkish economy; however, it is even weaker during the economic contraction. There is extensive literature about structure and sustainability of the current account deficit. However, many of the studies have analysed the sustainability of the current account deficits without considering the economic conjuncture. For this purpose, the study employs the Markov-switching method which is a non-linear time series model.