Global Imbalances and Capital Account Openness: An Empirical Analysis

Does financial openness explain the increase of global imbalances before the crisis of 2008? International Economics 143, 23-35

CEPN Working Papers No. 2011-18

34 Pages Posted: 19 Nov 2011 Last revised: 18 Jun 2019

Date Written: July 20, 2013

Abstract

We investigate if capital account openness has played a major role in the evolution of global imbalances on the period 1980-2003. We estimate, with panel regression techniques, the impact of capital account openness on medium run current account imbalances for industrialized and emerging countries by using a de jure measure of capital account openness (the Chinn-Ito index of capital account openness, 2002, 2006) and a de facto measure of capital account openness (the gross foreign assets measured as the sum of foreign assets and foreign liabilities). By increasing the opportunities of overseas investments, the relative capital account openness has had positive impact on medium run current account balances of industrialized countries (because of downward pressures on domestic investment rates). Conversely, the relative capital account openness has had negative impact on medium run current account balances of emerging countries (because of upward pressures on domestic investment rates). The evolutions of domestic and foreign capital account openness have allowed increasing medium run current account balances in absolute value during this period.

Keywords: Global Imbalances, Capital Account Openness, Chinn-Ito index

JEL Classification: F31, F41

Suggested Citation

Saadaoui, Jamel, Global Imbalances and Capital Account Openness: An Empirical Analysis (July 20, 2013). Does financial openness explain the increase of global imbalances before the crisis of 2008? International Economics 143, 23-35, CEPN Working Papers No. 2011-18, Available at SSRN: https://ssrn.com/abstract=1961328 or http://dx.doi.org/10.2139/ssrn.1961328

Jamel Saadaoui (Contact Author)

University of Strasbourg ( email )

61 Avenue de la ForĂȘt Noire
Strasbourg, Alsace 67000
France

HOME PAGE: http://www.jamelsaadaoui.com/

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