IDEAS home Printed from https://ideas.repec.org/a/ags/jaecon/37640.html
   My bibliography  Save this article

Sustainability of the US current account deficit: An econometric analysis of the impact of capital inflow on domestic economy

Author

Listed:
  • Ansari, Mohammed I.

Abstract

The 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.

Suggested Citation

  • Ansari, Mohammed I., 2004. "Sustainability of the US current account deficit: An econometric analysis of the impact of capital inflow on domestic economy," Journal of Applied Economics, Universidad del CEMA, vol. 7(2), pages 1-21, November.
    • Handle: RePEc:ags:jaecon:37640
    DOI: 10.22004/ag.econ.37640
    as

    Download full text from publisher

    File URL: https://ageconsearch.umn.edu/record/37640/files/ansari.pdf
    Download Restriction: no
    File URL: https://libkey.io/10.22004/ag.econ.37640?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Weisskopf, Thomas E, 1972. "An Econometric Test of Alternative Constraints on the Growth of Underdeveloped Countries," The Review of Economics and Statistics, MIT Press, vol. 54(1), pages 67-78, February.
    2. Voivodas, Constantin S, 1974. "Exports, Foreign Capital Inflow, and South Korean Growth," Economic Development and Cultural Change, University of Chicago Press, vol. 22(3), pages 480-484, April.
    3. Matthew Higgins & Thomas Klitgaard, 1998. "Viewing the current account deficit as a capital inflow," Current Issues in Economics and Finance, Federal Reserve Bank of New York, vol. 4(Dec).
    4. Johansen, Soren & Juselius, Katarina, 1990. "Maximum Likelihood Estimation and Inference on Cointegration--With Applications to the Demand for Money," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 52(2), pages 169-210, May.
    5. Papanek, Gustav F, 1972. "The Effect of Aid and other Resource Transfers on Savings and Growth in Less Developed Countries," Economic Journal, Royal Economic Society, vol. 82(327), pages 934-950, September.
    6. Murthy, N. R. Vasudeva & Phillips, Joseph M., 1996. "The relationship between budget deficits and capital inflows: Further econometric evidence," The Quarterly Review of Economics and Finance, Elsevier, vol. 36(4), pages 485-494.
    7. Edward M. Graham & Michael E. Ebert, 1991. "Foreign Direct Investment and US National Security: Fixing Exon-Florio," The World Economy, Wiley Blackwell, vol. 14(3), pages 245-268, September.
    8. Griffin, Keith B & Enos, J L, 1970. "Foreign Assistance: Objectives and Consequences," Economic Development and Cultural Change, University of Chicago Press, vol. 18(3), pages 313-327, April.
    9. Papanek, Gustav F, 1973. "Aid, Foreign Private Investment, Savings, and Growth in Less Developed Countries," Journal of Political Economy, University of Chicago Press, vol. 81(1), pages 120-130, Jan.-Feb..
    10. Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 231-254.
    11. Areskoug, Kaj, 1973. "Foreign-Capital Utilization and Economic Policies in Developing Countries," The Review of Economics and Statistics, MIT Press, vol. 55(2), pages 182-189, May.
    12. LeSage, James P, 1990. "A Comparison of the Forecasting Ability of ECM and VAR Models," The Review of Economics and Statistics, MIT Press, vol. 72(4), pages 664-671, November.
    13. Weisskopf, Thomas E., 1972. "The impact of foreign capital inflow on domestic savings in underdeveloped countries," Journal of International Economics, Elsevier, vol. 2(1), pages 25-38, February.
    14. Rousseau, Peter L & Wachtel, Paul, 1998. "Financial Intermediation and Economic Performance: Historical Evidence from Five Industrialized Countries," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 30(4), pages 657-678, November.
    15. Paul Krugman, 1995. "Currencies and Crises," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262611090, December.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Ali, Amjad & Audi, Marc, 2023. "Analyzing the Impact of Foreign Capital Inflows on the Current Account Balance in Developing Economies: A Panel Data Approach," MPRA Paper 118173, University Library of Munich, Germany.
    2. Aßmann, Christian, 2008. "Assessing the Effect of Current Account and Currency Crises on Economic Growth," Economics Working Papers 2008-01, Christian-Albrechts-University of Kiel, Department of Economics.
    3. Aßmann, Christian, 2007. "Determinants and Costs of Current Account Reversals under Heterogeneity and Serial Correlation," Economics Working Papers 2007-17, Christian-Albrechts-University of Kiel, Department of Economics.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Mohammed I. Ansari, 2004. "Sustainability of the US current account deficit: An econometric analysis of the impact of capital inflow on domestic economy," Journal of Applied Economics, Universidad del CEMA, vol. 7, pages 249-269, November.
    2. Henrik Hansen & Finn Tarp, 2000. "Aid effectiveness disputed," Journal of International Development, John Wiley & Sons, Ltd., vol. 12(3), pages 375-398, April.
    3. Ismail O. FASANYA & Adegbemi B.O ONAKOYA, 2012. "Does Foreign Aid Accelerate Economic Growth? An Empirical Analysis for Nigeria," International Journal of Economics and Financial Issues, Econjournals, vol. 2(4), pages 423-431.
    4. Sethi, Narayan & Bhujabal, Padmaja & Das, Aurolipsa & Sucharita, Sanhita, 2019. "Foreign aid and growth nexus: Empirical evidence from India and Sri Lanka," Economic Analysis and Policy, Elsevier, vol. 64(C), pages 1-12.
    5. Ulrich Lächler & Peter Nunnenkamp, 1987. "The effects of debt versus equity inflows on savings and growth in developing economies," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 123(4), pages 631-650, December.
    6. Zafar Iqbal, 1993. "Institutional Variations in Saving Behaviour in Pakistan," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 32(4), pages 1293-1311.
    7. Maurice Obstfeld., 1998. "Foreign Resource Inflows, Saving, and Growth," Center for International and Development Economics Research (CIDER) Working Papers C98-099, University of California at Berkeley.
    8. Ramesh Durbarry, 2004. "Foreign aid: is it all consumed?," Journal of International Development, John Wiley & Sons, Ltd., vol. 16(2), pages 189-199.
    9. Sethi, Narayan & Bhujabal, Padmaja & Sahoo, Malayaranjan & Sucharita, Sanhita, 2019. "Does Foreign Aid Act as an Instrument of Economic Growth in India and Sri Lanka?," Jurnal Ekonomi Malaysia, Faculty of Economics and Business, Universiti Kebangsaan Malaysia, vol. 53(2), pages 3-19.
    10. Michael Clemens & Steven Radelet & Rikhil Bhavnani, 2004. "Counting Chickens When They Hatch: The Short-term Effect of Aid on Growth," Working Papers 44, Center for Global Development.
    11. Chor Foon Tang & Hooi Hooi Lean, 2009. "The Effects Of Disaggregated Savings On Economic Growth In Malaysia - Generalised Variance Decomposition Analysis," Development Research Unit Working Paper Series 04-09, Monash University, Department of Economics.
    12. Mark McGillivray & Simon Feeny & Niels Hermes & Robert Lensink, 2005. "It Works; It Doesn't; It Can, But that Depends...: 50 Years of Controversy Over the Macroeconomic Impact of Development Aid," WIDER Working Paper Series RP2005-54, World Institute for Development Economic Research (UNU-WIDER).
    13. Ali, Sharafat & Ahmad, Najid, 2013. "A Time Series Analysis of Foreign Aid and Income Inequality in Pakistan," MPRA Paper 48877, University Library of Munich, Germany.
    14. Mark McGillivray & Simon Feeny & Niels Hermes & Robert Lensink, 2006. "Controversies over the impact of development aid: it works; it doesn't; it can, but that depends …," Journal of International Development, John Wiley & Sons, Ltd., vol. 18(7), pages 1031-1050.
    15. Boone, Peter, 1996. "Politics and the effectiveness of foreign aid," European Economic Review, Elsevier, vol. 40(2), pages 289-329, February.
    16. Tadesse, Tasew, 2011. "Foreign aid and economic growth in Ethiopia," MPRA Paper 33953, University Library of Munich, Germany, revised 20 Sep 2011.
    17. Onafowora, Olugbenga A. & Owoye, Oluwole, 1998. "Can Trade Liberalization Stimulate Economic Growth in Africa?," World Development, Elsevier, vol. 26(3), pages 497-506, March.
    18. Gries, Thomas & Kraft, Manfred & Meierrieks, Daniel, 2009. "Linkages Between Financial Deepening, Trade Openness, and Economic Development: Causality Evidence from Sub-Saharan Africa," World Development, Elsevier, vol. 37(12), pages 1849-1860, December.
    19. AFZAL, Muhammad, 2013. "National Savings And Foreign Capital In Pakistan," Applied Econometrics and International Development, Euro-American Association of Economic Development, vol. 13(2), pages 197-206.
    20. Innocent .U. Duru & Bartholomew .O.N. Okafor & Millicent Adanne Eze & Gabriel .O. Ebenyi, 2020. "Foreign Aid and Economic Growth: Empirical Evidence from Nigeria," Growth, Asian Online Journal Publishing Group, vol. 7(1), pages 35-50.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ags:jaecon:37640. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: AgEcon Search (email available below). General contact details of provider: https://edirc.repec.org/data/cemaaar.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.