This study tests for the stationarity and sustainability of current account deficits for ten transition economies. For this purpose, a new test is employed that allows one to test for unit roots in heterogeneous panel datasets. While the benefits from creating a panel to overcome low test power are well known, this test also offers key advantages over existing alternative panel data unit root tests: it is able to identify which members within the panel are responsible for rejecting the null hypothesis of joint non-stationarity. In addition, the SURADF test does not presume disturbances that are independently and identically distributed. Using data covering 1993 - 2001, this study finds strong evidence in favour of current account mean-reversion for six countries. Of the six countries in the sample that joined the European Union in May 2004, non-stationarity was confirmed in the case of Lithuania only.
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Article provided by University of Economics, Prague in its journal Prague Economic Papers.
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Find related papers by JEL classification: F3 - International Economics - - International Finance F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance O0 - Economic Development, Technological Change, and Growth - - General
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