Medium-Term Determinants of Current Accounts in Industrial and Developing Countries: An Empirical Exploration

36 Pages Posted: 14 Mar 2003

See all articles by Menzie David Chinn

Menzie David Chinn

University of Wisconsin, Madison - Robert M. La Follette School of Public Affairs and Department of Economics; National Bureau of Economic Research (NBER)

Eswar S. Prasad

Cornell University - Dyson School of Applied Economics and Management; Cornell University - Department of Economics; Brookings Institution; NBER; IZA Institute of Labor Economics; Cornell SC Johnson College of Business

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Abstract

This paper provides an empirical investigation of the medium-term determinants of current accounts for a large sample of industrial and developing countries, utilizing an approach that highlights macroeconomic determinants of longer-term saving and investment balances. Cross section and panel regression techniques are used to characterize the variation of the current account across countries and over time. We find that current account balances are positively correlated with government budget balances and initial stocks of net foreign assets. Among developing countries, measures of financial deepening are positively associated with current account balances while indicators of openness to international trade are negatively correlated with current account balances.

Keywords: Current account, net foreign assets, savings, investment, panel regressions, capital controls

JEL Classification: F32, F41

Suggested Citation

Chinn, Menzie David and Prasad, Eswar S., Medium-Term Determinants of Current Accounts in Industrial and Developing Countries: An Empirical Exploration. Available at SSRN: https://ssrn.com/abstract=337227 or http://dx.doi.org/10.2139/ssrn.337227

Menzie David Chinn

University of Wisconsin, Madison - Robert M. La Follette School of Public Affairs and Department of Economics ( email )

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Eswar S. Prasad (Contact Author)

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IZA Institute of Labor Economics

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Cornell SC Johnson College of Business ( email )

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