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New perspectives on the rise and fall of global imbalances: evidence from large emerging market economies

Author

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  • Krittika Banerjee

    (Indian Institute of Technology (ISM))

  • Ashima Goyal

    (Indira Gandhi Institute of Development Research)

Abstract

This paper estimates the impact of internal factors, such as governance institutions and financial development, versus external, such as capital flows uncertainty, on the excess savings of large emerging market economies (EMEs), identified as a major factor behind their trade surpluses. Using instrumental variables regression to control for endogeneity from institutions, we study eight major EMEs over 1995–2018 as well as a larger panel including both AEs and EMEs over 2001–2018 for robustness. Baseline estimates show that, along with financial development, democratic accountability and judiciary influence CA surpluses in both EMEs and AEs. Anti-corruption measures and government stability are influential specifically in AEs and EMEs respectively. For both EMEs and AEs, surpluses decrease with greater dependence on primary commodity exports supporting the “resource curse” thesis. That EME surpluses move negatively with better institutions and positively with capital flows uncertainty supports the precautionary motive. Sources of EME surpluses changed substantially from the pre- to the post-GFC years. During 2001–2008, higher growth, initial wealth, uncertainty in net capital flows increased surpluses. After 2008, reduced growth, lower CB intervention and better institutions rebalanced surpluses, particularly for Asia–Pacific nations.

Suggested Citation

  • Krittika Banerjee & Ashima Goyal, 2024. "New perspectives on the rise and fall of global imbalances: evidence from large emerging market economies," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 160(2), pages 541-583, May.
  • Handle: RePEc:spr:weltar:v:160:y:2024:i:2:d:10.1007_s10290-023-00508-2
    DOI: 10.1007/s10290-023-00508-2
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    More about this item

    Keywords

    Global trade imbalances; Institutions; Resource curse; Precautionary savings; Anderson-Hsiao IV estimator; Bai-Perron test;
    All these keywords.

    JEL classification:

    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F40 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - General
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission

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