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Are the Current Account Deficits in the Baltic States Sustainable?

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Author Info

  • Jorgen Drud Hansen

    ()
    (EuroFaculty Visiting Professor at Vilnius University)

  • Morten Hansen

    ()
    (EuroFaculty Visiting Professor at University of Latvia, Stockholm School of Economics in Riga)

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    Abstract

    For almost a decade all three Baltic countries have witnessed substantial deficits on the current accounts of the balance of payments. This paper discusses whether this situation should be a matter of concern. Recent literature on the sustainability of balance of payments deficits is reviewed and put into a Baltic context. The main conclusion is that the recurrent large deficits in the Baltic countries pose a risk for the fixed exchange rate policies until the countries adopt the euro. In the longer term large deficits will influence the time path of convergence of living standards between the Baltic countries and the EU as a whole.

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    Bibliographic Info

    Article provided by Baltic International Centre for Economic Policy Studies in its journal Baltic Journal of Economics.

    Volume (Year): 4 (2004)
    Issue (Month): 2 (July)
    Pages: 5-24

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    Handle: RePEc:bic:journl:v:4:y:2004:i:2:p:5-24

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    1. Jose De Gregorio, 1991. "Economic Growth in Latin America," IMF Working Papers 91/71, International Monetary Fund.
    2. Alfaro, Laura & Chanda, Areendam & Kalemli-Ozcan, Sebnem & Sayek, Selin, 2004. "FDI and economic growth: the role of local financial markets," Journal of International Economics, Elsevier, vol. 64(1), pages 89-112, October.
    3. Chow, Peter C. Y., 1987. "Causality between export growth and industrial development : Empirial evidence from the NICs," Journal of Development Economics, Elsevier, vol. 26(1), pages 55-63, June.
    4. De Gregorio, Jose, 1992. "The effects of inflation on economic growth : Lessons from Latin America," European Economic Review, Elsevier, vol. 36(2-3), pages 417-425, April.
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    Cited by:
    1. Egert, Balazs & Lommatzsch, Kirsten & Lahreche-Revil, Amina, 2006. "Real exchange rates in small open OECD and transition economies: Comparing apples with oranges?," Journal of Banking & Finance, Elsevier, vol. 30(12), pages 3393-3406, December.
    2. Benkovskis, Konstantins, 2005. "Econometric analysis and forecasting of Latvia's balance of payments," MPRA Paper 23274, University Library of Munich, Germany.

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