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Is there any Long-run Relationship between India’s Current and Capital Account Balance? A Time Series Analysis

Author

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  • Debashis Chakraborty

    (Debashis Chakraborty is Assistant Professor at Indian Institute of Foreign Trade (IIFT), New Delhi 110 016, India. E-mail: debchakra@gmail.com)

  • Jaydeep Mukherjee

    (Jaydeep Mukherjee is Assistant Professor at Indian Institute of Foreign Trade (IIFT), New Delhi 110 016, India. E-mail: jaydeepm74@gmail.com)

  • Tanaya Sinha

    (Tanaya Sinha is Research Fellow at Indian Institute of Foreign Trade (IIFT), New Delhi, 110 016, India. E-mail: tanaya82@gmail.com)

Abstract

The long-run relationship between current account balance (CAB) and capital account balance (KAB) and the repercussions of capital account convertibility (KAC) on the growth process of a country is a much-debated issue. In particular, in the aftermath of the Southeast Asian crisis, the limitation of the liberal capital regime for a developing country like India is often highlighted in the literature. However, the probable impact of introducing KAC on CAB in India is generally discussed theoretically. Though some empirical studies in India have recently focused on this research question, the current paper contributes to the literature first, by exploring the presence of any endogenous structural breaks in the individual series of CAB and KAB and then examining the nature of long-run relationship between them. Applying the ARDL method of co-integration, the empirical findings support the presence of a long term co-integrating relationship between capital and current account balance and reveals that a significant structural break is observed during 2002–03 for both the series.

Suggested Citation

  • Debashis Chakraborty & Jaydeep Mukherjee & Tanaya Sinha, 2012. "Is there any Long-run Relationship between India’s Current and Capital Account Balance? A Time Series Analysis," Global Business Review, International Management Institute, vol. 13(3), pages 433-447, October.
    • Handle: RePEc:sae:globus:v:13:y:2012:i:3:p:433-447
    DOI: 10.1177/097215091201300306
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    1. Jaydeep Mukherjee & Debashis Chakraborty & Tanaya Sinha, 2013. "How has FDI influenced Current Account Balance In India? Time Series Results in presence of Endogenous Structural Breaks," Working Papers 1317, Indian Institute of Foreign Trade.

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