Due to the existence of large and persistent global current account imbalances in the last two decades, economists and policy makers have paid more attention to the issue of current account. Determinants of current account balances are of considerable interest in open economy macroeconomics. The behaviour of the current account balance contains important information about an economy's economy performance, and also provides valuable macroeconomic policy recommendations.
There are several theoretical models existing in the literature that try to explain the behaviour of the current account balance. Each of them gives different predictions about the elements determining the current account balance and the sign and magnitude of the relationships between the current account fluctuations and its determinants. Therefore, undertaking an empirical analysis could help discriminate among competing theories. Understanding the elements that influence the current account balance in both short-run and long-run can have important policy implications.
As shown in figure 1 above, before the 1997 Asian financial crisis, the current account balances of emerging Asia, Europe and Oil-exporting countries were very close to zero. Although United States (US) kept running a current account deficit during that period, the size of the deficits was relatively small. However, the US current account deficit started to widen sharply as import growth surged right after the Asian crisis. Meanwhile, emerging Asia and oil-exporting countries started to run large current account surpluses. This phenomenon has been known as „global imbalances in the recent years. From figure 1, it is clear that the global imbalances have narrowed considerably in 2009 according to the IMF estimates. IMF predicts that the large US current account deficit would be reduced by nearly a half in 2009 due to the sub-prime mortgage crisis, which was triggered by a dramatic rise in mortgage delinquencies and foreclosures in 2008 in the US.
On the other hand, due to a dramatic decrease in the value of oil revenues, the current account surpluses would diminish sharply for the oil-exporting countries in 2009. However, the IMF estimates predict only a small fall in the current account surplus of emerging Asia. Therefore, by the end of 2009, the remaining large current account surplus of emerging Asia would become the main counterpart to the current account deficits of US and Europe. After looking at the world picture of the global current account imbalances, it is clear that emerging Asia a whole has been an important and growing contributor to the recent global imbalances. Therefore, the analysis in this paper has a special focus on the emerging Asia economies.
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An Empirical Analysis of Current Account Determinants in Emerging Asian Economies
