IDEAS home Printed from https://ideas.repec.org/p/imf/imfwpa/2000-046.html
   My bibliography  Save this paper

Medium-Term Determinants of Current Accounts in Industrial and Developing Countries: An Empirical Exploration

Author

Listed:
  • Menzie David Chinn
  • Mr. Eswar S Prasad

Abstract

This paper provides an empirical investigation of the medium-term determinants of current accounts for a large sample of industrial and developing countries. The analysis is based on a structural approach that highlights the roles of the fundamental macroeconomic determinants of saving and investment. Cross-section and panel regression techniques are used to characterize the properties of current account variation across countries and over time. Current account balances are positively correlated with government budget balances and initial stocks of net foreign assets. Among developing countries, measures of financial deepening are positively correlated while indicators of openness to international trade are negatively correlated with current account balances.

Suggested Citation

  • Menzie David Chinn & Mr. Eswar S Prasad, 2000. "Medium-Term Determinants of Current Accounts in Industrial and Developing Countries: An Empirical Exploration," IMF Working Papers 2000/046, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2000/046
    as

    Download full text from publisher

    File URL: http://www.imf.org/external/pubs/cat/longres.aspx?sk=3484
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Mr. Hamid Faruqee & Guy Debelle, 1996. "What Determines the Current Account? a Cross-Sectional and Panel Approach," IMF Working Papers 1996/058, International Monetary Fund.
    2. Razin, A., 1993. "The Dynamic-Optimizing Approach to the Current Account: Theory and Evidence," Papers 2-93, Tel Aviv - the Sackler Institute of Economic Studies.
    3. Jones, Charles I., 1994. "Economic growth and the relative price of capital," Journal of Monetary Economics, Elsevier, vol. 34(3), pages 359-382, December.
    4. Lane, Philip R. & Milesi-Ferretti, Gian Maria, 2001. "The external wealth of nations: measures of foreign assets and liabilities for industrial and developing countries," Journal of International Economics, Elsevier, vol. 55(2), pages 263-294, December.
    5. Aart Kraay & Jaume Ventura, 2000. "Current Accounts in Debtor and Creditor Countries," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 115(4), pages 1137-1166.
    6. Glick, Reuven & Rogoff, Kenneth, 1995. "Global versus country-specific productivity shocks and the current account," Journal of Monetary Economics, Elsevier, vol. 35(1), pages 159-192, February.
    7. Maurice Obstfeld & Kenneth S. Rogoff, 1996. "Foundations of International Macroeconomics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262150476, April.
    8. Calderon Cesar Augusto & Chong Alberto & Loayza Norman V., 2002. "Determinants of Current Account Deficits in Developing Countries," The B.E. Journal of Macroeconomics, De Gruyter, vol. 2(1), pages 1-33, March.
    9. Eijffinger,Sylvester C. W. & Huizinga,Harry P. (ed.), 1998. "Positive Political Economy," Cambridge Books, Cambridge University Press, number 9780521572156.
    10. Ghosh, Atish R, 1995. "International Capital Mobility amongst the Major Industrialised Countries: Too Little or Too Much?," Economic Journal, Royal Economic Society, vol. 105(428), pages 107-128, January.
    11. Alesina, Alberto & Hausmann, Ricardo & Hommes, Rudolf & Stein, Ernesto, 1999. "Budget institutions and fiscal performance in Latin America," Journal of Development Economics, Elsevier, vol. 59(2), pages 253-273, August.
    12. Sebastian Edwards, 1995. "Why are Saving Rates so Different Across Countries?: An International Comparative Analysis," NBER Working Papers 5097, National Bureau of Economic Research, Inc.
    13. Mr. Peter Isard & Mr. Hamid Faruqee, 1998. "Exchange Rate Assessment: Extension of the Macroeconomic Balance Approach," IMF Occasional Papers 1998/012, International Monetary Fund.
    14. Jaewoo Lee & Menzie D. Chinn, 1998. "The Current Account and the Real Exchange Rate: A Structural VAR Analysis of Major Currencies," NBER Working Papers 6495, National Bureau of Economic Research, Inc.
    15. Masson, Paul R & Bayoumi, Tamim & Samiei, Hossein, 1998. "International Evidence on the Determinants of Private Saving," The World Bank Economic Review, World Bank, vol. 12(3), pages 483-501, September.
    16. repec:bla:econom:v:61:y:1994:i:244:p:407-34 is not listed on IDEAS
    17. Nason, James M & Rogers, John H, 2002. "Investment and the Current Account in the Short Run and the Long Run," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 34(4), pages 967-986, November.
    18. Robert E. Hall & Charles I. Jones, 1999. "Why do Some Countries Produce So Much More Output Per Worker than Others?," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 114(1), pages 83-116.
    19. Reinhart, Carmen M. & Talvi, Ernesto, 1998. "Capital flows and saving in Latin America and Asia: a reinterpretation," Journal of Development Economics, Elsevier, vol. 57(1), pages 45-66, October.
    20. Barry P. Bosworth & Susan M. Collins, 1999. "Capital Flows to Developing Economies: Implications for Saving and Investment," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 30(1), pages 143-180.
    21. Schmidt-Hebbel, Klaus & Webb, Steven B & Corsetti, Giancarlo, 1992. "Household Saving in Developing Countries: First Cross-Country Evidence," The World Bank Economic Review, World Bank, vol. 6(3), pages 529-547, September.
    22. Serven, Luis, 1998. "Macroeconomic uncertainty and private investment in developing countries - an empirical investigation," Policy Research Working Paper Series 2035, The World Bank.
    23. Calderon,Cesar & Loayza,Norman V. & Serven,Luis, 2000. "External sustainability : a stock equilibrium perspective," Policy Research Working Paper Series 2281, The World Bank.
    24. Prasad, Eswar S, 1999. "International Trade and the Business Cycle," Economic Journal, Royal Economic Society, vol. 109(458), pages 588-606, October.
    25. Lane, Philip & Milesi-Ferretti, Gian Maria, "undated". "External Wealth of Nations," Instructional Stata datasets for econometrics extwealth, Boston College Department of Economics.
    26. Lane Philip R., 2004. "Empirical Perspectives on Long-Term External Debt," The B.E. Journal of Macroeconomics, De Gruyter, vol. 4(1), pages 1-23, January.
    27. Ghosh, Atish R & Ostry, Jonathan D, 1995. "The Current Account in Developing Countries: A Perspective from the Consumption-Smoothing Approach," The World Bank Economic Review, World Bank, vol. 9(2), pages 305-333, May.
    28. Quah, Danny T., 1996. "Empirics for economic growth and convergence," European Economic Review, Elsevier, vol. 40(6), pages 1353-1375, June.
    29. Mr. Francesco Grigoli & Alexander Herman & Klaus Schmidt-Hebbel, 2014. "World Saving," IMF Working Papers 2014/204, International Monetary Fund.
    30. Quah, Danny T, 1996. "Convergence Empirics across Economies with (Some) Capital Mobility," Journal of Economic Growth, Springer, vol. 1(1), pages 95-124, March.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Michał Brzozowski & Sadananda Prusty, 2013. "Impact of GDP volatility on current account balances," International Journal of Economics and Business Research, Inderscience Enterprises Ltd, vol. 5(3), pages 239-252.
    2. Tarlok Singh, 2007. "Intertemporal Optimizing Models Of Trade And Current Account Balance: A Survey," Journal of Economic Surveys, Wiley Blackwell, vol. 21(1), pages 25-64, February.
    3. De Santis, Roberto A. & Lührmann, Melanie, 2009. "On the determinants of net international portfolio flows: A global perspective," Journal of International Money and Finance, Elsevier, vol. 28(5), pages 880-901, September.
    4. Verdier, Genevieve, 2008. "What drives long-term capital flows A theoretical and empirical investigation," Journal of International Economics, Elsevier, vol. 74(1), pages 120-142, January.
    5. Lone Christiansen & Alessandro Prati & Luca Antonio Ricci & Thierry Tressel, 2010. "External Balance in Low-Income Countries," NBER Chapters, in: NBER International Seminar on Macroeconomics 2009, pages 265-322, National Bureau of Economic Research, Inc.
    6. Smith, Constance E., 2011. "External balance adjustment: An intra-national and international comparison," Journal of International Money and Finance, Elsevier, vol. 30(6), pages 1195-1213, October.
    7. Klára Plecitá & Ladislava Grochová & Luboš Střelec, 2013. "Current account imbalances in the euro area," Acta Universitatis Agriculturae et Silviculturae Mendelianae Brunensis, Mendel University Press, vol. 61(7), pages 2631-2638.
    8. Calderon Cesar Augusto & Chong Alberto & Loayza Norman V., 2002. "Determinants of Current Account Deficits in Developing Countries," The B.E. Journal of Macroeconomics, De Gruyter, vol. 2(1), pages 1-33, March.
    9. Florian Morvillier, 2018. "On the impact of the launch of the euro on EMU macroeconomic vulnerability," EconomiX Working Papers 2018-51, University of Paris Nanterre, EconomiX.
    10. Herrmann, Sabine & Winkler, Adalbert, 2009. "Real convergence, financial markets, and the current account - Emerging Europe versus emerging Asia," The North American Journal of Economics and Finance, Elsevier, vol. 20(2), pages 100-123, August.
    11. De Santis, Roberto A. & Lührmann, Melanie, 2006. "On the determinants of external imbalances and net international portfolio flows: a global perspective," Working Paper Series 651, European Central Bank.
    12. Giancarlo Corsetti & Panagiotis T. Konstantinou, 2012. "What Drives US Foreign Borrowing? Evidence on the External Adjustment to Transitory and Permanent Shocks," American Economic Review, American Economic Association, vol. 102(2), pages 1062-1092, April.
    13. Eswar S. Prasad & Kenneth Rogoff & Shang-Jin Wei & M. Ayhan Kose, 2007. "Financial Globalization, Growth and Volatility in Developing Countries," NBER Chapters, in: Globalization and Poverty, pages 457-516, National Bureau of Economic Research, Inc.
    14. Matthieu Bussiere & Georgios Chortareas & Rebecca Driver, 2003. "Current Accounts, Net Foreign Assets and the Implications of Cyclical Factors," Eastern Economic Journal, Eastern Economic Association, vol. 29(2), pages 269-286, Spring.
    15. Helmut Herwartz & Florian Siedenburg, 2007. "Determinants of Current Account Imbalances in 16 OECD Countries: An Out-Of-Sample Perspective," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 143(2), pages 349-374, July.
    16. Kano, Takashi, 2008. "A structural VAR approach to the intertemporal model of the current account," Journal of International Money and Finance, Elsevier, vol. 27(5), pages 757-779, September.
    17. Aart Kraay & Norman Loayza & Luis Servén & Jaume Ventura, 2005. "Country Portfolios," Journal of the European Economic Association, MIT Press, vol. 3(4), pages 914-945, June.
    18. Laura Alfaro & Sebnem Kalemli-Ozcan & Vadym Volosovych, 2008. "Why Doesn't Capital Flow from Rich to Poor Countries? An Empirical Investigation," The Review of Economics and Statistics, MIT Press, vol. 90(2), pages 347-368, May.
    19. Guy Debelle & Gabriele Galati, 2007. "Current Account Adjustment and Capital Flows," Review of International Economics, Wiley Blackwell, vol. 15(5), pages 989-1013, November.
    20. Gourinchas, Pierre-Olivier & Rey, Hélène, 2014. "External Adjustment, Global Imbalances, Valuation Effects," Handbook of International Economics, in: Gopinath, G. & Helpman, . & Rogoff, K. (ed.), Handbook of International Economics, edition 1, volume 4, chapter 0, pages 585-645, Elsevier.

    More about this item

    Keywords

    WP; developing country; GDP; GDP ratio; result; Current account variation; structural and macroeconomic determinants; saving-investment balance; current account position; current account determination; budget balance; current account sustainability; current account dynamics; developing country sample; Current account; Current account balance; Current account deficits; Personal income; Terms of trade; Africa;
    All these keywords.

    JEL classification:

    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:imf:imfwpa:2000/046. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Akshay Modi (email available below). General contact details of provider: https://edirc.repec.org/data/imfffus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.