Determinants of Current Account Deficits in Developing Countries

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.

Bibliographic Details

Main Authors:	Calderon, Cesar, Chong, Alberto, Loayza, Norman
Language:	English en_US
Published:	World Bank, Washington, DC 2000-07
Subjects:	ANNUAL OBSERVATIONS, BALANCE OF PAYMENTS, BILATERAL TRADE, BLACK MARKET, BLACK MARKET PREMIUM, BUSINESS CYCLE, CAPITAL CONTROLS, CAPITAL FLOWS, CAPITAL GAINS, CENTRAL BANK, CONSUMER PRICE INDEX, COUNTRY DATA, COUNTRY SAMPLE, COUNTRY SPECIFIC, COUNTRY VARIATION, CPI, CURRENT ACCOUNT, CURRENT ACCOUNT BALANCE, CURRENT ACCOUNT DEFICIT, CURRENT ACCOUNT DEFICITS, CURRENT ACCOUNT REVERSALS, DEBT SERVICE, DEMOGRAPHICS, DEPENDENCY RATIO, DEPENDENCY RATIOS, DEPENDENT VARIABLE, DEVELOPED COUNTRIES, DEVELOPING COUNTRIES, DEVELOPING ECONOMIES, DEVELOPMENT INDICATORS, DEVELOPMENT RESEARCH, DOMESTIC CURRENCY, DOMESTIC OUTPUT, DOMESTIC OUTPUT GROWTH, DYNAMIC PANEL, ECONOMIC CONDITIONS, ECONOMIC IMPACT, ECONOMICS, EMPIRICAL ANALYSIS, EMPIRICAL EVIDENCE, EMPIRICAL LITERATURE, EMPIRICAL RESEARCH, EMPIRICAL STUDIES, EQUILIBRIUM, ERROR TERM, ESTIMATED COEFFICIENT, ESTIMATED COEFFICIENTS, ESTIMATION METHOD, ESTIMATION RESULTS, EXPLANATORY VARIABLES, EXPORTS, EXTERNAL BORROWING, EXTERNAL CONDITIONS, EXTERNAL DEBT, EXTERNAL FACTORS, EXTERNAL FINANCING, EXTERNAL IMBALANCES, EXTERNAL INDEBTEDNESS, EXTERNAL SHOCKS, FOREIGN CURRENCY, FOREIGN EXCHANGE, FOREIGN EXCHANGE CONTROLS, GNP, GOVERNMENT DEBT, GROSS NATIONAL PRODUCT, GROSS NATIONAL SAVING, GROSS OUTPUT, GROWTH PERFORMANCE, GROWTH RATE, GROWTH RATES, INDUSTRIAL COUNTRIES, INDUSTRIALIZED COUNTRIES, INFLATION, INTEREST RATES, INTERNATIONAL CAPITAL, INTERNATIONAL CURRENCY, INTERNATIONAL FINANCIAL STATISTICS, INTERNATIONAL INTEREST RATES, INTERNATIONAL INVESTORS, INVESTMENT OPPORTUNITIES, INVESTMENT RATE, INVESTMENT RATES, LAGGED DEPENDENT, LAGGED LEVELS, LAGGED VALUE, LAGGED VALUES, LIQUID LIABILITIES, LOCAL CURRENCY, LONG RUN, MACROECONOMIC CRISES, MACROECONOMIC MISMANAGEMENT, MACROECONOMIC UNCERTAINTY, MACROECONOMIC VARIABLES, MULTIPLE EXCHANGE RATE, NATIONAL DISPOSABLE INCOME, NATIONAL INCOME, NATIONAL SAVING, NEGATIVE EFFECT, NET FOREIGN ASSETS, 0 HYPOTHESIS, OIL, OUTPUT GROWTH, POLICY MAKERS, POLICY RESEARCH, PRICE ELASTICITIES, PRIVATE DOMESTIC, PRIVATE SAVING, PRIVATE SAVING RATE, PRIVATE SAVING RATES, PRODUCTIVITY, PRODUCTIVITY GROWTH, PUBLIC DEBT, PUBLIC SECTOR, REAL APPRECIATION, REAL EXCHANGE, REAL EXCHANGE RATE, REAL INTEREST, REAL INTEREST RATE, REAL INTEREST RATES, RELATIVE INCOME, SAVING RATES, SAVINGS, SERIAL CORRELATION, SHORT-RUN CHANGES, SIGNIFICANT EFFECT, STANDARD DEVIATION, TERMS OF TRADE, TERMS OF TRADE SHOCKS, TRADE SHOCKS, TRANSITORY SHOCKS,
Online Access:	http://documents.worldbank.org/curated/en/2000/07/443639/determinants-current-account-deficits-developing-countries https://hdl.handle.net/10986/19825
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