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Long run sustainability of current account balance of China and India: New evidence from combined cointegration test

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  • Sahoo, Manoranjan
  • Babu, M. Suresh
  • Dash, Umakant

Abstract

This paper investigates the long run sustainability of current account balance (CAB) in two fast growing emerging economies of Asia, China and India, using annual data from 1980 to 2014. Sustainability of current account balance is analyzed by examining the long run equilibrium relationship between exports and imports of goods and services. We use the Bayer-Hanck (2013) combined cointegration test to examine the long run relationship between exports and imports. The results indicate that while China has a sustainable current account balance, India’s current account balance is not sustainable in the long run. Therefore, in terms of maintaining the growth momentum, India has to enhance the rate of growth of its exports while China has to maintain high levels of export growth, even in an era of sluggish global demand.

Suggested Citation

  • Sahoo, Manoranjan & Babu, M. Suresh & Dash, Umakant, 2016. "Long run sustainability of current account balance of China and India: New evidence from combined cointegration test," MPRA Paper 79013, University Library of Munich, Germany, revised 2016.
  • Handle: RePEc:pra:mprapa:79013
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    File URL: https://mpra.ub.uni-muenchen.de/79013/1/MPRA_paper_79013.pdf
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    References listed on IDEAS

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    1. repec:ebl:ecbull:eb-17-00517 is not listed on IDEAS
    2. Amba Oyon Claude Marius & Taoufiki Mbratana & Kane Gilles Quentin, 2017. "Assessing the current account sustainability in ECCAS economies: A dual cointegration analysis," Economics Bulletin, AccessEcon, vol. 37(3), pages 1873-1894.

    More about this item

    Keywords

    Current account deficit Sustainability Intertemporal budget constraint;

    JEL classification:

    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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