Current Account Balances and Non-financial Corporate Savings—A Cross-Country Perspective
Studies in International Economics and Finance, Springer pp 347–364, 2022
22 Pages Posted: 4 Oct 2022 Last revised: 8 Oct 2022
Date Written: March 31, 2022
As non-financial corporate sector savings tend to increase globally, its effect on the current account balance assumes particular significance for macrofinancial stability. This study investigates the relationship between current account balance and (non-financial) corporate savings for a panel of developed and developing countries. Using a system GMM model, we find that average current account increases by 0.32% when non-financial corporate savings increase by 1%. Our results are robust to controlling for household sector and government net savings. While the nature of relationship varies across developed versus developing economies, we find that outward flow of FDI and net investment income are plausible channels through which the non-financial corporate savings impact a country’s current account, where corporate savings are affected more by their own income effect compared to a relative price effect. A country’s demographic characteristics and currency strength are important determinants driving this relationship.
Keywords: Current account balance, Non-financial corporates, Sectoral financial balances
JEL Classification: D15, E21, F41, G32
Suggested Citation: Suggested Citation