Current-Account Reversals in Developing Countries: A Perspective on the East-Asian Crisis

Abstract

This paper studies episodes of current-account reversal in developing countries (DCs) in the period 1965-1994. First, a number of persistent shifts ("reversals") in the current-account balance dynamics are identified by structural break and segmented trend tests; then, the relationship between these reversals and a set of fundamentals suggested by the intertemporal approach to the current account is investigated in a panel-data set-up. We find that fundamentals play a different role in episodes of persistent deterioration or improvement of the current-account balance in DCs, and focus on the countries involved in the recent external crises in East Asian.

JEL Classification: C22, C23, F32