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Investment incomes vs. the trade balance: Is the current account still a meaningful concept? (Konstantin Wacker)

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  • Konstantin M. Wacker

    (University of Groningen)

Abstract

This paper documents that cross-border investment income flows are important for explaining current account balances in major economies. Those investment incomes reflect returns on cross-border asset holdings and on balance often reach magnitudes around 5% of major economies’ gross domestic product. I show that several correlates of this investment income balance differ from other current account components, including the trade balance. Both components essentially exhibit a zero correlation with each other, with considerable crosscountry heterogeneity. Moreover, I show that investment incomes are more persistent than other current account components, suggesting that more time is needed for current account imbalances to adjust.

Suggested Citation

  • Konstantin M. Wacker, 2024. "Investment incomes vs. the trade balance: Is the current account still a meaningful concept? (Konstantin Wacker)," Working Papers 256, Oesterreichische Nationalbank (Austrian Central Bank).
    • Handle: RePEc:onb:oenbwp:256
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    More about this item

    Keywords

    Global imbalances; current account; international investment position; balance of payments;
    All these keywords.

    JEL classification:

    • F3 - International Economics - - International Finance
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F45 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Macroeconomic Issues of Monetary Unions

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