IDEAS home Printed from https://ideas.repec.org/p/wbk/wbrwps/2398.html
   My bibliography  Save this paper

Determinants of current account deficits in developing countries

Author

Listed:
  • Calderon, Cesar
  • Chong, Alberto
  • Loayza, Norman

Abstract

The authors examine the empirical links between current account deficits and a broad set of economic variables proposed in the literature. To accomplish this, they complement and extend previous research by using a large, consistent set of macroeconomic data on public and private domestic savings, external savings, and national income variables; focusing on developing economies by drawing on a panel data set for 44 developing countries and annual information for the period 1966-95; adopting a reduced-form approach rather than holding to a particular structural model; distinguishing between within-country and cross-country effects; and employing a class of estimators that controls for the problems of simultaneity and reverse causation. Among their findings: Current account deficits in developing countries are moderately persistent. A rise in domestic output growth generates a larger current account deficit. Increases in savings rates have a positive effect on the current account. Shocks that increase the terms of trade or cause the real exchange rate to appreciate are linked with higher current account deficits. Either higher growth rates in industrial economies or higher international interest rates reduce the current account deficit in developing economies.

Suggested Citation

  • Calderon, Cesar & Chong, Alberto & Loayza, Norman, 2000. "Determinants of current account deficits in developing countries," Policy Research Working Paper Series 2398, The World Bank.
  • Handle: RePEc:wbk:wbrwps:2398
    as

    Download full text from publisher

    File URL: http://www-wds.worldbank.org/external/default/WDSContentServer/WDSP/IB/2000/08/26/000094946_00081505321149/Rendered/PDF/multi_page.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. 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. Mendoza, Enrique G, 1995. "The Terms of Trade, the Real Exchange Rate, and Economic Fluctuations," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 36(1), pages 101-137, February.
    3. Eichengreen, Barry & Rose, Andrew & Wyplosz, Charles, 1996. " Contagious Currency Crises: First Tests," Scandinavian Journal of Economics, Wiley Blackwell, vol. 98(4), pages 463-484, December.
    4. Alonso-Borrego, Cesar & Arellano, Manuel, 1999. "Symmetrically Normalized Instrumental-Variable Estimation Using Panel Data," Journal of Business & Economic Statistics, American Statistical Association, vol. 17(1), pages 36-49, January.
    5. Arellano, Manuel & Bover, Olympia, 1995. "Another look at the instrumental variable estimation of error-components models," Journal of Econometrics, Elsevier, vol. 68(1), pages 29-51, July.
    6. Altonji, Joseph G & Segal, Lewis M, 1996. "Small-Sample Bias in GMM Estimation of Covariance Structures," Journal of Business & Economic Statistics, American Statistical Association, vol. 14(3), pages 353-366, July.
    7. Obstfeld, Maurice & Rogoff, Kenneth, 1995. "The intertemporal approach to the current account," Handbook of International Economics, in: G. M. Grossman & K. Rogoff (ed.), Handbook of International Economics, edition 1, volume 3, chapter 34, pages 1731-1799, Elsevier.
    8. 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.
    9. Maurice Obstfeld & Kenneth S. Rogoff, 1996. "Foundations of International Macroeconomics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262150476, September.
    10. Maurice Obstfeld, 1982. "Aggregate Spending and the Terms of Trade: Is There a Laursen-Metzler Effect?," The Quarterly Journal of Economics, Oxford University Press, vol. 97(2), pages 251-270.
    11. Gary S. Becker & Nigel Tomes, 1994. "Human Capital and the Rise and Fall of Families," NBER Chapters, in: Human Capital: A Theoretical and Empirical Analysis with Special Reference to Education, Third Edition, pages 257-298, National Bureau of Economic Research, Inc.
    12. Gian Maria Milesi Ferretti & Assaf Razin, 2000. "Current Account Reversals and Currency Crises: Empirical Regularities," NBER Chapters, in: Currency Crises, pages 285-323, National Bureau of Economic Research, Inc.
    13. Vittorio Grilli & Gian Maria Milesi-Ferretti, 1995. "Economic Effects and Structural Determinants of Capital Controls," IMF Staff Papers, Palgrave Macmillan, vol. 42(3), pages 517-551, September.
    14. Milesi-Ferreti, Gian Maria & Razin, Assaf, 1996. "Current account sustainability," Sede de la CEPAL en Santiago (Estudios e Investigaciones) 34294, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL).
    15. Ross Levine & Norman Loayza & Thorsten Beck, 2002. "Financial Intermediation and Growth: Causality and Causes," Central Banking, Analysis, and Economic Policies Book Series, in: Leonardo Hernández & Klaus Schmidt-Hebbel & Norman Loayza (Series Editor) & Klaus Schmidt-Hebbel (Se (ed.),Banking, Financial Integration, and International Crises, edition 1, volume 3, chapter 2, pages 031-084, Central Bank of Chile.
    16. Enrique G. Mendoza, 1992. "The Effects of Macroeconomic Shocks in a Basic Equilibrium Framework," IMF Staff Papers, Palgrave Macmillan, vol. 39(4), pages 855-889, December.
    17. Griliches, Zvi & Hausman, Jerry A., 1986. "Errors in variables in panel data," Journal of Econometrics, Elsevier, vol. 31(1), pages 93-118, February.
    18. Blundell, Richard & Bond, Stephen, 1998. "Initial conditions and moment restrictions in dynamic panel data models," Journal of Econometrics, Elsevier, vol. 87(1), pages 115-143, August.
    19. 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.
    20. Jacob Frenkel & Assaf Razin, 1996. "Fiscal Policies and Growth in the World Economy," MIT Press Books, The MIT Press, edition 3, volume 1, number 0262561042, September.
    21. Marquez, Jaime & McNeilly, Caryl, 1988. "Income and Price Elasticities for Exports of Developing Countries," The Review of Economics and Statistics, MIT Press, vol. 70(2), pages 306-314, May.
    22. Leiderman, Leonardo & Razin, Assaf, 1991. "Determinants of external imbalances: The role of taxes, government spending, and productivity," Journal of the Japanese and International Economies, Elsevier, vol. 5(4), pages 421-450, December.
    23. Greenwood, Jeremy, 1983. "Expectations, the exchange rate, and the current account," Journal of Monetary Economics, Elsevier, vol. 12(4), pages 543-569, November.
    24. anonymous, 1998. "Financial intermediation and growth," Economics Update, Federal Reserve Bank of Atlanta, issue Jan, pages 1-4.
    25. Mansoorian, Arman, 1998. "Habits and durability in consumption, and the dynamics of the current account," Journal of International Economics, Elsevier, vol. 44(1), pages 69-82, February.
    26. Marquez, Jaime, 1990. "Bilateral Trade Elasticities," The Review of Economics and Statistics, MIT Press, vol. 72(1), pages 70-77, February.
    27. Norman Loayza & Klaus Schmidt-Hebbel & Luis Servén, 2000. "What Drives Private Saving Across the World?," The Review of Economics and Statistics, MIT Press, vol. 82(2), pages 165-181, May.
    28. Easterly, William & Loayza, Norman & Montiel, Peter, 1997. "Has Latin America's post-reform growth been disappointing?," Journal of International Economics, Elsevier, vol. 43(3-4), pages 287-311, November.
    29. Peter Hooper & Karen H. Johnson & Jaime R. Marquez, 1998. "Trade elasticities for G-7 countries," International Finance Discussion Papers 609, Board of Governors of the Federal Reserve System (U.S.).
    30. Catherine A Pattillo & Andrew Berg, 1998. "Are Currency Crises Predictable? A Test," IMF Working Papers 1998/154, International Monetary Fund.
    31. Jeremy Greenwood & Kent P. Kimbrough, 1985. "Capital Controls and Fiscal Policy in the World Economy," Canadian Journal of Economics, Canadian Economics Association, vol. 18(4), pages 743-765, November.
    32. Ziliak, James P, 1997. "Efficient Estimation with Panel Data When Instruments Are Predetermined: An Empirical Comparison of Moment-Condition Estimators," Journal of Business & Economic Statistics, American Statistical Association, vol. 15(4), pages 419-431, October.
    33. Dooley, Michael P & Isard, Peter, 1980. "Capital Controls, Political Risk, and Deviations from Interest-Rate Parity," Journal of Political Economy, University of Chicago Press, vol. 88(2), pages 370-384, April.
    34. King, Robert G. & Levine, Ross, 1993. "Finance, entrepreneurship and growth: Theory and evidence," Journal of Monetary Economics, Elsevier, vol. 32(3), pages 513-542, December.
    35. Mundlak, Yair, 1978. "On the Pooling of Time Series and Cross Section Data," Econometrica, Econometric Society, vol. 46(1), pages 69-85, January.
    36. Cashin, Paul & McDermott, C John, 1998. "Are Australia's Current Account Deficits Excessive?," The Economic Record, The Economic Society of Australia, vol. 74(227), pages 346-361, December.
    37. Caselli, Francesco & Esquivel, Gerardo & Lefort, Fernando, 1996. "Reopening the Convergence Debate: A New Look at Cross-Country Growth Empirics," Journal of Economic Growth, Springer, vol. 1(3), pages 363-389, September.
    38. D. Fiaschi, 1996. "Fiscal policies and growth," Working Papers 261, Dipartimento Scienze Economiche, Universita' di Bologna.
    39. Sheffrin, Steven M. & Woo, Wing Thye, 1990. "Present value tests of an intertemporal model of the current account," Journal of International Economics, Elsevier, vol. 29(3-4), pages 237-253, November.
    40. Ahn, Seung C. & Schmidt, Peter, 1997. "Efficient estimation of dynamic panel data models: Alternative assumptions and simplified estimation," Journal of Econometrics, Elsevier, vol. 76(1-2), pages 309-321.
    41. Diaz-Alejandro, Carlos, 1985. "Good-bye financial repression, hello financial crash," Journal of Development Economics, Elsevier, vol. 19(1-2), pages 1-24.
    42. Ghosh, Atish R & Ostry, Jonathan D, 1995. "The Current Account in Developing Countries: A Perspective from the Consumption-Smoothing Approach," World Bank Economic Review, World Bank Group, vol. 9(2), pages 305-333, May.
    43. Marquez, Jaime, 1991. "The Dynamics of Uncertainty or the Uncertainty of Dynamics: Stochastic J-Curves," The Review of Economics and Statistics, MIT Press, vol. 73(1), pages 125-133, February.
    44. Enrique G. Mendoza, 1991. "Capital Controls and the Gains from Trade in a Business Cycle Model of a Small Open Economy," IMF Staff Papers, Palgrave Macmillan, vol. 38(3), pages 480-505, September.
    45. Francesco Grigoli & Alexander Herman & Klaus Schmidt-Hebbel, 2014. "World Saving," IMF Working Papers 2014/204, International Monetary Fund.
    46. Sachs, Jeffrey, 1982. " The Current Account in the Macroeconomic Adjustment Process," Scandinavian Journal of Economics, Wiley Blackwell, vol. 84(2), pages 147-159.
    47. Svensson, Lars E O & Razin, Assaf, 1983. "The Terms of Trade and the Current Account: The Harberger-Laursen-Metzler Effect," Journal of Political Economy, University of Chicago Press, vol. 91(1), pages 97-125, February.
    48. Manuel Arellano & Stephen Bond, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," Review of Economic Studies, Oxford University Press, vol. 58(2), pages 277-297.
    49. Tornell, Aaron & Lane, Philip R., 1998. "Are windfalls a curse?: A non-representative agent model of the current account," Journal of International Economics, Elsevier, vol. 44(1), pages 83-112, February.
    50. Anderson, T. W. & Hsiao, Cheng, 1982. "Formulation and estimation of dynamic models using panel data," Journal of Econometrics, Elsevier, vol. 18(1), pages 47-82, January.
    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. Luisa Zanforlin & César Calderón & Alberto Chong, 2001. "Are African Current Account Deficits Different? Stylized Facts, Transitory Shocks, and Decomposition Analysis," IMF Working Papers 2001/004, International Monetary Fund.
    2. Beck, Thorsten & Levine, Ross & Loayza, Norman, 2000. "Finance and the sources of growth," Journal of Financial Economics, Elsevier, vol. 58(1-2), pages 261-300.
    3. Loayza, Norman & Schmidt-Hebbel, Klaus & Serven, Luis, 2000. "What drives private saving around the world?," Policy Research Working Paper Series 2309, The World Bank.
    4. Norman Loayza & Pablo Fajnzylber & César Calderón, 2005. "Economic Growth in Latin America and the Caribbean : Stylized Facts, Explanations, and Forecasts," World Bank Publications, The World Bank, number 7315, June.
    5. Ross Levine & Norman Loayza & Thorsten Beck, 2002. "Financial Intermediation and Growth: Causality and Causes," Central Banking, Analysis, and Economic Policies Book Series, in: Leonardo Hernández & Klaus Schmidt-Hebbel & Norman Loayza (Series Editor) & Klaus Schmidt-Hebbel (Se (ed.),Banking, Financial Integration, and International Crises, edition 1, volume 3, chapter 2, pages 031-084, Central Bank of Chile.
    6. Aristovnik, Aleksander, 2006. "The Determinants & Excessiveness of Current Account Deficits in Eastern Europe & the Former Soviet Union," MPRA Paper 483, University Library of Munich, Germany.
    7. Loayza, Norman V. & Ranciere, Romain, 2006. "Financial Development, Financial Fragility, and Growth," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 38(4), pages 1051-1076, June.
    8. Norman Loayza & Klaus Schmidt-Hebbel & Luis Servén, 2000. "What Drives Private Saving Across the World?," The Review of Economics and Statistics, MIT Press, vol. 82(2), pages 165-181, May.
    9. Ca’ Zorzi, Michele & Chudik, Alexander & Dieppe, Alistair, 2012. "Thousands of models, one story: Current account imbalances in the global economy," Journal of International Money and Finance, Elsevier, vol. 31(6), pages 1319-1338.
    10. Rizlane Guati, 2006. "Real Exchange Rate Misalignments in Some Mediterranean Countries," EcoMod2006 272100034, EcoMod.
    11. Aleksander Aristovnik & Stanka Setnikar-Cankar, 2006. "How Excessive are External Imbalances in Selected Transition Countries?," Prague Economic Papers, Prague University of Economics and Business, vol. 2006(3), pages 243-267.
    12. Norman Loayza & Romain Ranciere, 2002. "Financial Development, Financial Fragility, and Growth," CESifo Working Paper Series 684, CESifo.
    13. César Calderón & Alberto Chong & Luisa Zanforlin, 2007. "Current Account Deficits in Africa: Stylized Facts and Basic Determinants," Economic Development and Cultural Change, University of Chicago Press, vol. 56(1), pages 191-221, October.
    14. César Calderón & Alberto Chong, 2004. "Volume and Quality of Infrastructure and the Distribution of Income: An Empirical Investigation," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 50(1), pages 87-106, March.
    15. Alberto Chong & César Calderón, 2001. "Volumen y calidad de la infraestructura y la distribución del ingreso: investigación empírica," Research Department Publications 4264, Inter-American Development Bank, Research Department.
    16. Fernando Pérez de Gracia & Juncal Cuñado, "undated". "Intertemporal Current Account and Productivity Shocks: Evidence for Some European Countries," Working Papers on International Economics and Finance 01-05, FEDEA.
    17. PAUL CASHIN & C. JOHN McDERMOTT, 1998. "Are Australia's Current Account Deficits Excessive?," The Economic Record, The Economic Society of Australia, vol. 74(227), pages 346-361, December.
    18. Yongfu Huang, 2011. "Private investment and financial development in a globalized world," Empirical Economics, Springer, vol. 41(1), pages 43-56, August.
    19. William Hauk & Romain Wacziarg, 2009. "A Monte Carlo study of growth regressions," Journal of Economic Growth, Springer, vol. 14(2), pages 103-147, June.
    20. Gian Maria Milesi Ferretti & Assaf Razin, 2000. "Current Account Reversals and Currency Crises: Empirical Regularities," NBER Chapters, in: Currency Crises, pages 285-323, National Bureau of Economic Research, Inc.

    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:wbk:wbrwps:2398. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Roula I. Yazigi). General contact details of provider: https://edirc.repec.org/data/dvewbus.html .

    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 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.

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

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.