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Financial markets and the current account: emerging Europe versus emerging Asia

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  • Sabine Herrmann

    ()

  • Adalbert Winkler

Abstract

Financial globalisation has been associated with divergent current account patterns in emerging market economies. While countries in emerging Asia have been running sizeable current account surpluses, countries in emerging Europe have been facing large current account deficits. In this paper we test for the relevance of financial market characteristics in explaining divergent current account patterns in emerging Europe and emerging Asia based on the assumption that both regions constitute two different convergence clubs with the euro area and the US representing the core, respectively. In line with the theoretical literature, we find that better developed and more integrated financial markets increase emerging markets´ ability to borrow abroad. The degree of financial integration within the convergence clubs as well as the extent of reserve accumulation are found to be the most significant factors to explain divergent current account patterns in emerging Europe and emerging Asia. We conclude that the overall character of integration matters for the pattern of current account developments in catching-up economies.

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File URL: http://hdl.handle.net/10.1007/s10290-009-0025-2
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Article provided by Springer & Institut für Weltwirtschaft (Kiel Institute for the World Economy) in its journal Review of World Economics.

Volume (Year): 145 (2009)
Issue (Month): 3 (October)
Pages: 531-550

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Handle: RePEc:spr:weltar:v:145:y:2009:i:3:p:531-550
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Keywords: F15; F21; O16; O52; O53; Real convergence; Economic integration; Saving and investment; Current account developments; Financial markets; Emerging market economies;

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Find related papers by JEL classification:
  • O53 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Asia including Middle East
  • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
  • F15 - International Economics - - Trade - - - Economic Integration
  • O52 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Europe
  • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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Cited by:

  1. Stefania Fabrizio & Daniel Leigh & Ashoka Mody, 2009. "The second transition: Eastern Europe in perspective," European Economy - Economic Papers 2008 - 2015 366, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
  2. Ruben V Atoyan & Jonathan F Manning & Jesmin Rahman, 2013. "Rebalancing; Evidence from Current Account Adjustment in Europe," IMF Working Papers 13/74, International Monetary Fund.
  3. Bussière, Matthieu & Pérez-Barreiro, Emilia & Straub, Roland & Taglioni, Daria, 2010. "Protectionist responses to the crisis – global trends and implications," Occasional Paper Series 110, European Central Bank.
  4. Schmitz, Martin, 2011. "Financial remoteness and the net external position," Working Paper Series 1330, European Central Bank.
  5. Smith, Constance, 2011. "External Balance Adjustment: An Intra-National and International Comparison," Working Papers 2011-13, University of Alberta, Department of Economics.
  6. Gunther Schnabl & Stephan Freitag, 2012. "Determinants of Global and Intra-European Imbalances," Global Financial Markets Working Paper Series 25-2011, Friedrich-Schiller-University Jena.
  7. Schnabl, Gunther & Freitag, Stephan, 2009. "An asymmetry matrix in global current accounts," Working Papers 76, University of Leipzig, Faculty of Economics and Management Science.
  8. Anton Jevcak & Ralph Setzer & Massimo Suardi, 2010. "Determinants of Capital Flows to the New EU Member States Before and During the Financial Crisis," European Economy - Economic Papers 2008 - 2015 425, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
  9. Orszaghova, Lucia & Savelin, Li & Schudel, Willem, 2013. "External competitiveness of EU candidate countries," Occasional Paper Series 141, European Central Bank.
  10. Danica Unevska Andonova & Branimir Jovanovic, 2011. "Sustainability of the Macedonian Current Account," Working Papers 2011-06, National Bank of the Republic of Macedonia.
  11. Dubravko Mihaljek, 2008. "The financial stability implications of increased capital flows for emerging market economies," BIS Papers chapters, in: Bank for International Settlements (ed.), Financial globalisation and emerging market capital flows, volume 44, pages 11-44 Bank for International Settlements.
  12. Wildmann, Christian, 2010. "What drives portfolio investments of German banks in emerging capital markets?," Discussion Paper Series 2: Banking and Financial Studies 2010,04, Deutsche Bundesbank, Research Centre.
  13. Gunther Schnabl & Stephan Freitag, 2012. "Reverse Causality in Global and Intra-European Imbalances," Review of International Economics, Wiley Blackwell, vol. 20(4), pages 674-690, 09.

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