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Revisiting the Determinants of Current Account Balances in Emerging Market Economies

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  • Juan Jose Battaglia

Abstract

This paper examines the determinants of current account balances in a panel of 45 emerging market economies over the period 1986–2024, drawing on the IMF External Balance Assessment (EBA) framework. The results identify fiscal balances, real exchange rate dynamics, foreign exchange intervention, and foreign direct investment as the most robust determinants of current account outcomes. Fiscal balances emerge as a particularly strong and robust determinant of current account outcomes in the emerging-market sample. The findings remain broadly unchanged across alternative specifications and robustness exercises. Local projection estimates further indicate that fiscal balances and the share of foreign direct investment in external liabilities of a country exert the most systematic effects on current account adjustment. Overall, the results suggest that estimating current account models exclusively for emerging economies provides additional insights beyond those obtained from pooled advanced and emerging economy samples.

Suggested Citation

  • Juan Jose Battaglia, 2026. "Revisiting the Determinants of Current Account Balances in Emerging Market Economies," Working Papers REM 2026/0433, ISEG - Lisbon School of Economics and Management, REM, Universidade de Lisboa.
    • Handle: RePEc:ise:remwps:wp04332026
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    Keywords

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    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
    • F62 - International Economics - - Economic Impacts of Globalization - - - Macroeconomic Impacts
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models

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