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Long run sustainability of current account balance of China and India: New evidence from combined cointegration test

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  • Sahoo, Manoranjan
  • Babu, M. Suresh
  • Dash, Umakant

Abstract

This paper investigates the long run sustainability of current account balance (CAB) in two fast growing emerging economies of Asia, China and India, using annual data from 1980 to 2014. Sustainability of current account balance is analyzed by examining the long run equilibrium relationship between exports and imports of goods and services. We use the Bayer-Hanck (2013) combined cointegration test to examine the long run relationship between exports and imports. The results indicate that while China has a sustainable current account balance, India’s current account balance is not sustainable in the long run. Therefore, in terms of maintaining the growth momentum, India has to enhance the rate of growth of its exports while China has to maintain high levels of export growth, even in an era of sluggish global demand.

Suggested Citation

  • Sahoo, Manoranjan & Babu, M. Suresh & Dash, Umakant, 2016. "Long run sustainability of current account balance of China and India: New evidence from combined cointegration test," MPRA Paper 79013, University Library of Munich, Germany, revised 2016.
    • Handle: RePEc:pra:mprapa:79013
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    Cited by:

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    2. ARIÇ Kıvanç Halil & SEK Siok Kun & de SOUSA Miguel Rocha, 2021. "Current Account Balance In Emerging Asia," Studies in Business and Economics, Lucian Blaga University of Sibiu, Faculty of Economic Sciences, vol. 16(1), pages 12-25, April.
    3. Manoranjan Sahoo, 2018. "Exchange Rate and Service Exports from India: A Nonlinear ARDL Analysis," Economics Bulletin, AccessEcon, vol. 38(2), pages 1090-1101.
    4. Garg, Bhavesh & Prabheesh, K.P., 2021. "Testing the intertemporal sustainability of current account in the presence of endogenous structural breaks: Evidence from the top deficit countries," Economic Modelling, Elsevier, vol. 97(C), pages 365-379.
    5. Adeel Saleem & Maqbool H. Sial & Ahmed Raza Cheema, 2023. "Does an asymmetric nexus exist between exports and economic growth in Pakistan? Recent evidence from a nonlinear ARDL approach," Economic Change and Restructuring, Springer, vol. 56(1), pages 297-326, February.
    6. Dissou, Yazid & Nafie, Yousra, 2019. "Sustainability of current account deficits: Evidence from Egypt using an asymmetric ARDL model," The Journal of Economic Asymmetries, Elsevier, vol. 20(C).
    7. Amba Oyon Claude Marius & Taoufiki Mbratana & Kane Gilles Quentin, 2017. "Assessing the current account sustainability in ECCAS economies: A dual cointegration analysis," Economics Bulletin, AccessEcon, vol. 37(3), pages 1873-1894.

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    More about this item

    Keywords

    Current account deficit Sustainability Intertemporal budget constraint;

    JEL classification:

    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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