Global Financial Crisis, Protectionism and Current Account Deficit

The recent financial and economic crisis, and the resurgence in the popularity of emerging markets has raised fears in these economies of a resumption in capital flight or a sudden stop of capital inflows. The latter, in particular, is intensively discussed in South Africa. We try to evaluate this danger by focusing on the sustainability of South Africa’s current account deficit during the recent past, and on longterm economic policy developments in the country. We argue that the macroeconomic as well as the relevant microeconomic policy variables do not suggest a sudden stop. However, to lower this risk further, the microeconomic environment has to be improved considerably in the future. This includes mainly reforms in the areas of infrastructure, competition and trade policy.