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Current Account Developments in New Member States of the European Union

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  • Jesmin Rahman

Abstract

This paper analyzes current account (CA) developments in the following 10 new EU members states: Czech Republic, Bulgaria, Estonia, Hungary, Latvia, Lithuania, Poland, Romania, Slovakia and Slovenia. During the last 15 years, these countries, on average, have run CA deficits that are considerably higher than the average CA deficit of other developing countries. However, more recently, a diverging pattern has emerged among these countries with one group, consisting of the Baltic countries, Bulgaria and Romania, experiencing rapid widening, while the others seeing a stabilization in their CA balances. Using panel data for 59 countries, this paper empirically investigates the following three questions: Are higher average deficits in EU-10 explained by medium-term macroeconomic fundamentals? What explains the diverging CA behavior among EU-10? And finally, how challenging is it for the group experiencing rapidly widening CA deficits to reverse the trend?

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 08/92.

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Length: 34
Date of creation: 01 Apr 2008
Date of revision:
Handle: RePEc:imf:imfwpa:08/92

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Related research

Keywords: European Union; fdi; investment climate; transition economies; exchange rate regime; export performance; industrial countries; manufacturing sector; trading partners; exchange rate regimes; direct investment; export structure; domestic investment; foreign direct investment; foreign capital; income convergence; output growth; domestic savings; export sector; foreign asset; net foreign asset; external financing; foreign banks; foreign investors; foreign exchange; international standard; transition countries; transition economy; transport equipment; accession negotiations; oil prices; foreign assets; domestic banks; current account balance; trading partner; per capita income; competition policy; foreign asset position; export industries; exchange rate policies; net foreign asset position; foreign liabilities; terms of trade; trade block; price liberalization; merchandise trade; oil exporters; short-term debt;

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References

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  1. Francesco Caselli & Silvana Tenreyro, 2005. "Is Poland the Next Spain?," CEP Discussion Papers, Centre for Economic Performance, LSE dp0668, Centre for Economic Performance, LSE.
  2. Gian Maria Milesi-Ferrett & Assaf Razin, 1996. "Sustainability of Persistent Current Account Deficits," NBER Working Papers 5467, National Bureau of Economic Research, Inc.
  3. Aizenman, Joshua & Sun, Yi, 2010. "Globalization and the sustainability of large current account imbalances: Size matters," Journal of Macroeconomics, Elsevier, Elsevier, vol. 32(1), pages 35-44, March.
  4. Daniel Leigh & Abdul Abiad & Ashoka Mody, 2007. "International Finance and Income Convergence," IMF Working Papers 07/64, International Monetary Fund.
  5. Chinn, Menzie D. & Ito, Hiro, 2007. "Current account balances, financial development and institutions: Assaying the world "saving glut"," Journal of International Money and Finance, Elsevier, Elsevier, vol. 26(4), pages 546-569, June.
  6. G. Russell Kincaid & Martin Fetherston & Peter Isard & Hamid Faruqee, 2001. "Methodology for Current Account and Exchange Rate Assessments," IMF Occasional Papers 209, International Monetary Fund.
  7. Philip Schellekens & Rudolfs Bems, 2007. "Finance and Convergence," IMF Working Papers 07/244, International Monetary Fund.
  8. Beck, T.H.L. & Demirgüç-Kunt, A. & Levine, R., 2000. "A new database on financial development and structure," Open Access publications from Tilburg University urn:nbn:nl:ui:12-3125518, Tilburg University.
  9. Aasim M. Husain & Ashoka Mody & Nienke Oomes & Robin Brooks & Kenneth Rogoff, 2003. "Evolution and Performance of Exchange Rate Regimes," IMF Working Papers 03/243, International Monetary Fund.
  10. Menzie D. Chinn & Eswar S. Prasad, 2000. "Medium-Term Determinants of Current Accounts in Industrial and Developing Countries: An Empirical Exploration," NBER Working Papers 7581, National Bureau of Economic Research, Inc.
  11. Herrmann, Sabine & Jochem, Axel, 2005. "Trade balances of the central and east European EU member states and the role of foreign direct investment," Discussion Paper Series 1: Economic Studies 2005,41, Deutsche Bundesbank, Research Centre.
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