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Current Account Balances and Non-financial Corporate Savings—A Cross-Country Perspective

In: Studies in International Economics and Finance

Author

Listed:
  • Purna Banerjee

    (Reserve Bank of India)

  • Sonalika Sinha

    (Reserve Bank of India)

Abstract

As non-financial corporate sector savings tend to increase globally, its effect on the current account balance assumes particular significance for macrofinancial stability. This study investigates the relationship between current account balance and (non-financial) corporate savings for a panel of developed and developing countries. Using a system GMM model, we find that average current account increases by 0.32% when non-financial corporate savings increase by 1%. Our results are robust to controlling for household sector and government net savings. While the nature of relationship varies across developed versus developing economies, we find that outward flow of FDI and net investment income are plausible channels through which the non-financial corporate savings impact a country’s current account, where corporate savings are affected more by their own income effect compared to a relative price effect. A country’s demographic characteristics and currency strength are important determinants driving this relationship.

Suggested Citation

  • Purna Banerjee & Sonalika Sinha, 2022. "Current Account Balances and Non-financial Corporate Savings—A Cross-Country Perspective," India Studies in Business and Economics, in: Naoyuki Yoshino & Rajendra N. Paramanik & Anoop S. Kumar (ed.), Studies in International Economics and Finance, pages 347-364, Springer.
    • Handle: RePEc:spr:isbchp:978-981-16-7062-6_19
    DOI: 10.1007/978-981-16-7062-6_19
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    More about this item

    Keywords

    Current account balance; Non-financial corporates; Sectoral financial balances;
    All these keywords.

    JEL classification:

    • D15 - Microeconomics - - Household Behavior - - - Intertemporal Household Choice; Life Cycle Models and Saving
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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