Sustainability of the US current account deficit: An econometric analysis of the impact of capital inflow on domestic economy
AbstractThe purpose of this paper is to estimate, by using the recent econometric techniques of unit root testing and Johansen-Juselius cointegration technique (1990), the impact of foreign capital inflow on the volume and efficiency of domestic investment in the United States during the period, 1973-1999. A battery of diagnostic tests is employed to check the validity and robustness of the estimated results. Evidence suggests that capital inflows have had a significant positive effect on the volume of US investment, but the effect on the efficiency of investment has been minimal. These findings imply that, while achieving current account balance is important, it is equally important to sustain and augment the beneficial impact of capital inflow by creating a more conducive investment climate. Given our limited ability to influence current account balance, this seems to be a more pragmatic policy option for dealing with the US current account imbalance.
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Bibliographic InfoArticle provided by Universidad del CEMA in its journal Journal of Applied Economics.
Volume (Year): VII (2004)
Issue (Month): (November)
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More information through EDIRC
current account; capital inflow;
Find related papers by JEL classification:
- F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
- F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
- O51 - Economic Development, Technological Change, and Growth - - Economywide Country Studies - - - U.S.; Canada
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