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Dark Matter: Some Reflections on the Current Account Debate

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  • Tanweer Akram

    (ING Investment Management)

  • Haider A. Khan

    (GSIS , University of Denver)

Abstract

The United States has a large and persistent current account deficit. Yet, U.S.'s income receipts from the rest of the world have exceeded its income payments to the rest of the world for many years. This appears to be paradoxical because for a country with a negative net foreign assets position, such as the U.S., international income payments to the rest of the world are likely to exceed its international income receipts. Hausmann and Sturzenegger (2005) offer an explanation of this apparent paradox. They argue that U.S. current account statistics do not properly measure U.S.'s net foreign assets position and that its actual net foreign assets position is measurably better than the officially estimated position primarily due to the existence of intangible corporate capital invested overseas. In their view the debate about the sustainability of the U.S. current account deficit and the negative net foreign assets position is moot because these deficits and debts are either non-existent or fairly small. This paper critically evaluates Hausmann et al's claims and examines the implications of their hypothesis. It offers, within an analytical framework, alternative explanations that are more consistent with the stylized facts.

Suggested Citation

  • Tanweer Akram & Haider A. Khan, 2007. "Dark Matter: Some Reflections on the Current Account Debate," CIRJE F-Series CIRJE-F-470, CIRJE, Faculty of Economics, University of Tokyo.
  • Handle: RePEc:tky:fseres:2007cf470
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