This study conducts an investigation into the sustainability of the Indian current account over the study period 1950-2003. A necessary condition for current account sustainability is that exports and imports are cointegrated. After testing for unit roots that allow for a structural break, we employ parametric tests for cointegration: based on Johansen (1995) and Saikonnen and Lutkepohl (2000) as well as the nonparametric procedure proposed by Breitung (2002) and Breitung and Taylor (2003) that does not assume linearity. By employing these procedures recursively, two distinct regimes are identified characterised by whether or not imports and exports are cointegrated. The regime of non-cointegration runs until the late 1990s and the second regime of cointegration is present after that. This latter regime coincides with the liberalisation of the Indian economy.
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Paper provided by Department of Economics, University of Macedonia in its series Discussion Paper Series with number
2007_05.
Find related papers by JEL classification: C5 - Mathematical and Quantitative Methods - - Econometric Modeling F1 - International Economics - - Trade F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance
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