The Impact of Current Account Deficits on Economic Growth in Zimbabwe
International Journal for Innovative Research in Multidisciplinary Field, Volume 3, Issue 8, August 2017
16 Pages Posted: 11 Oct 2017 Last revised: 11 Dec 2017
Date Written: October 11, 2017
Current account deficit has become a common phenomenon in both developed and developing countries. Although there is a plethora of perspective towards the current account deficit-economic growth nexus, there is still no consensus on the impact and direction of causality. This study seeks to address the issue of current account deficits in Zimbabwe. Time series data from 1980-2013 was used and the OLS estimation technique was employed in data analysis. The results obtained indicate that there is a positive relationship between current account balance and growth and other variables that come about as ways of trying to curb a deficit like foreign direct investment, external debt and foreign aid are also positively linked to the economy’s performance. Having obtained these results the government of Zimbabwe is however recommended to put into place policy mechanisms that aim at increasing and boosting the investor confidence so as to increase FDI and also the capital absorptive capacity of the country such that foreign aid will be effective aiming at stage managing growth.
Keywords: Current Account Deficits, Economic Growth, External Debt, Foreign Aid, Foreign Direct Investment, Zimbabwe
JEL Classification: F32, F34, F43, H62, H63, H68
Suggested Citation: Suggested Citation