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

See all articles by Purna Banerjee

Purna Banerjee

Reserve Bank of India, Mumbai

Sonalika Sinha

Reserve Bank of India

Date Written: March 31, 2022

Abstract

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

Banerjee, Purna and Sinha, Sonalika, Current Account Balances and Non-financial Corporate Savings—A Cross-Country Perspective (March 31, 2022). Studies in International Economics and Finance, Springer pp 347–364, 2022, Available at SSRN: https://ssrn.com/abstract=4159468 or http://dx.doi.org/10.2139/ssrn.4159468

Purna Banerjee

Reserve Bank of India, Mumbai

Central Office,
Mumbai, Maharashtra
Mumbai, 400001
India

Sonalika Sinha (Contact Author)

Reserve Bank of India ( email )

Reserve Bank of India
Central Office
Mumbai, Maharashtra 400001
India

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

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