scholarly journals Impact of International Trade and Trade Duties on Current Account Balance of the Balance of Payment: A study of N-11 Countries

2020 ◽  
Vol 6 (1) ◽  
pp. 11-32
Author(s):  
Imtiaz Arif ◽  
Lubna Khan ◽  
Fatima Farooq ◽  
Tahir Suleman
Keyword(s):  
International Trade ◽  
Current Account ◽  
Current Account Deficit ◽  
Unit Root Test ◽  
Future Research ◽  
Current Account Balance ◽  
Test Panel ◽  
Causality Analysis ◽  
Integration Test ◽  
The Impact

This study is aimed to investigate the impact of international trade and trade duties upon the current account balance of the balance of payment of N-11 countries. Two constituents of each factor have been considered for the purpose of analysis. For International trade, import (IMPT) and export (EXPT) of goods and services have been considered whereas, for trade duties, taxes on international trade (TOIT) and customs and other import duties (CID) have been taken as the research variables whereas, current account balance (CAB) has been taken as the dependent variable. For the purpose of analysis panel data of N-11 countries for 27 years from 1990 to 2016 has been tested using different econometric technique such as Panel unit root test, Panel co-integration test, Hausman test, Panel regression analysis and Panel causality analysis. The results demonstrate that overall research variables are co-integrated and having long term relationship and affecting each other in the conventional manner. Notably, it is observed via results that in case of N-11 countries the CAB itself is the regulating factor and all other factors are adjusted according to the movement of CAB. The study provides recommendations for the rectification of current account deficit position and also provides scope for future research as well.

scholarly journals Structural and cyclical factors of Serbia’s current account

2018 ◽  
Vol 63 (217) ◽  
pp. 75-97 ◽  
Author(s):  
Radovan Kovacevic
Keyword(s):  
Current Account ◽  
Structural Changes ◽  
Current Account Deficit ◽  
Current Account Balance ◽  
Full Time ◽  
Structural Factors ◽  
Crisis Period ◽  
The Impact ◽  
The Current Account

This paper examines the impact of structural and cyclical factors on Serbia?s current account. We have applied several filters to turn off the long-term (structural) component and isolate the influence of cyclical factors. In this paper, we show that structural factors were more important determinants of the current account deficit in the full-time sample (1997-2016), while cyclical factors showed a stronger impact in the post-crisis period when the deficit was reduced. Although they lost their intensity during the crisis and in the post-crisis period, the structural factors determine the trend of the current account balance in the long-term. For further improvement of the current account, measures to increase exports should be taken. The structural changes of production, the wider range of support for export financing to small and medium-sized enterprises, and the application of advanced technologies in manufacturing could help to reduce the trade deficit, making the current account deficit sustainable.

scholarly journals Analysis of Current Account Deficit Determinants of Balance of Payments in Fixed and Flexible Exchange Rate Regimes: A Comparative Study in CFA Franc and Non-Franc Zones

2017 ◽  
Vol 3 (3) ◽  
pp. 447
Author(s):  
Remy Hounsou
Keyword(s):  
Current Account ◽  
Current Account Deficit ◽  
Flexible Exchange Rate ◽  
Balance Of Payments ◽  
Current Account Balance ◽  
Domestic Saving ◽  
Franc Zone ◽  
Financial Variables ◽  
The Impact ◽  
The Current Account

<p><em>This study compares the impact of certain economic and financial variables on the level of the deficit in the current account of the balance of payments of the countries of the Franc zone and certain countries of the non-Franc zone situated south of the Sahara. The empirical results of the study based on panel data models covering the period 1990-2015 indicate that none of the two zones behaves better against the current account deficit of the balance of payments and that no zone is more competitive than the other. Finally, it was clear from our analysis that the variables of gross domestic, saving and the change in the terms of trade better explain the change in the current account balance in the Franc zone, whereas the variables of net foreign transfers and gross domestic saving impact the most the current account deficit in non-CFA zone.</em></p>

The Impact of Current Account Deficit on Economic Growth: An ARDL Approach

2020 ◽  
Vol 21 (1) ◽  
pp. 76-92
Author(s):  
Tamma Reddy ◽  
T. Sita Ramaiah
Keyword(s):  
Economic Growth ◽  
Exchange Rate ◽  
Current Account ◽  
Unit Root ◽  
Current Account Deficit ◽  
External Debt ◽  
Unit Root Test ◽  
Output Growth ◽  
The Impact ◽  
The Current Account

In this study, we examine the linkages between External debt, Exchange rate, Current account deficit, and GDP at Factor cost for India over the period of 1975-76 to 2018- 19 using the Unit root test and Autoregressive Distributed Lag (ARDL). The results of the unit root test reveal that GDP growth rate and External debt are integrated at the level I(0); while the Current Account deficit and Exchange rate are integrated at first order I(1). The results of the ARDL technique reveal that the current account deficit has a positive and significant impact on Real GDP. It clearly reflects the role of imports in accelerating the growth of a developing economy like India. There is also evidence that the external debt has a positive and significant impact on the Current account deficit while the Exchange rate does not have an impact on the Current account deficit. The authors opine that the external debt assists in a gradual reduction in the current account deficit and contributes to economic growth by narrowing down the saving-investment gap. As the demand for Indian exports is inelastic in the global market, the country has not benefitted from the depreciation of its currency. The authors stressed the need for focusing on further diversification of its export markets, creating a conducive environment for attracting longer-term FDIs, liberalization, promoting commercial services exports, and achieving exchange rate stability in the context of the USA-China trade war and stagnation in the world output growth. Huge untapped potential for IT-enabled services should be exploited to promote service trade. The authors point out the current account deficit in the range of 2-3 percent of GDP can be manageable.

scholarly journals The sustainability of Serbia's external position: The impact of fiscal adjustment and external shocks

2015 ◽  
Vol 60 (204) ◽  
pp. 31-60
Author(s):  
Emir Zildzovic
Keyword(s):  
Fiscal Policy ◽  
Current Account ◽  
Current Account Deficit ◽  
Model Averaging ◽  
Current Account Balance ◽  
External Shocks ◽  
Fiscal Adjustment ◽  
External Position ◽  
The Impact ◽  
Averaging Techniques

This paper studies the impact of fiscal policy and external shocks on the sustainability of Serbia?s external position. The key determinants of Serbia's current account balance are identified using model averaging techniques and are compared with estimates obtained for other small open economies (Poland, Georgia, Morocco, Ukraine, and Estonia). The paper uses estimated influences of macrovariables on the current account balance to generate a rich set of possible outcomes for the external position of the country. The results suggest the importance of fiscal policy for the reduction of external imbalances in all countries in our sample. In particular, credible and sustained fiscal adjustment can reduce current account deficit and stabilize Serbia?s external position close to its current level over the medium term. The analysis also warns that lack of success in fiscal consolidation coupled with external shocks may easily push the external position onto an unsustainable path.

scholarly journals ANALYSIS OF THE FACTOR OF HOUSEHOLD SAVINGS IN BIH BY APPLICATION OF ECM METHODOLOGY

2020 ◽  
Vol 20 (2) ◽  
Author(s):  
Irma Đidelija
Keyword(s):  
Foreign Trade ◽  
Current Account ◽  
Trade Balance ◽  
Government Expenditure ◽  
Unit Root Test ◽  
Current Account Balance ◽  
Household Savings ◽  
Long Run ◽  
General Government ◽  
The Impact

Savings as an alternative source of capital, in the opinion of most economists, are a much more reliable and rational source of investment funds than others. Therefore, the aim of this research is to determine what factors can drive domestic household savings with further repressions to overall economic growth. This research examined the impact of macroeconomic and financial factors on household savings based on quarterly data from the BiH Agency for Statistics and the Central Bank of Bosnia and Herzegovina for the period 2000-2016. For this purpose, seasoning of variables was done using X-13 ARIMA and TRAMO / SEATS. The stationarity of seasonally adjusted variables was examined through: the extended Dickey-Fuller unit root test, the Phillips-Perrontest unit root test, and the Kwaitkowski-Phillips-Schmidt-Shin stationarity test. The model included only non-stationary first order integration variables, which are also cointegrated, which is a condition for applying the error correction method (ECM). The application of the ECM methodology first required determining the appropriate number of lag in the VAR model and then applying the Johansen cointegration test. The following were used as independent variables in ECM: industrial production, government expenditure in% of GDP, money supply (M2) in% of GDP, foreign trade balance in% of GDP, current account balance in% of GDP, deposit population interest rate and unemployment rate. The variables included are based on ECM methodology criteria, which is the same order of integration and cointegration. Among the long-run interdependence ratios, only general government expenditure ratios in% of GDP, foreign trade balance in% of GDP and current account balance in% of GDP proved to be statistically significantly different from zero. The first two coefficients have a positive sign, while the impact of the current account balance in the gross domestic product is negative. A one percent increase in the share of general government expenditures and foreign trade balance in Gross Domestic Product will in the long run lead to an increase in the household savings rate by 4.1% and 3.5% respectively. The error correction coefficient (EC (-1)) in the short-term part of the model, which measures the rate of equilibrium adaptation in the dynamic model, is with the expected negative sign, but is not statistically significant. The high value of the adjusted coefficient of determination, 0.385, suggests that almost 39% of variations in household savings are explained by variations in the set of independent variables included in the ECM model. The obtained research findings can be significant indicators for adequate monetary and fiscal policy measures in BiH, and can be indicators for the overall macroeconomic policy of the country.

Impact of Age–Structure Transition on India’s Current Account Balance: An Empirical Analysis

2019 ◽  
Vol 13 (2) ◽  
pp. 208-231
Author(s):  
Aneesha Chitgupi
Keyword(s):  
Current Account ◽  
Age Structure ◽  
Current Account Deficit ◽  
Jel Classification ◽  
Demographic Variables ◽  
Current Account Balance ◽  
Structure Transition ◽  
Working Age ◽  
The Impact ◽  
High Share

This article studies the impact of age structure variables on the current account balance (CAB) by using panel data for 57 countries from 1980 to 2014. The Gudmundsson and Zoega (Economic Letters 123[2]:183–186, 2014) methodology is used to calculate the age-adjusted CAB for these countries and India-specific results are analysed in comparison with Brazil, Russia, China and South Africa. Empirical results show that India’s age-adjusted CAB would have experienced surpluses had it not been for the high share of its dependent population, especially the young. Further, the age-adjustment factor for India shows a gradual decline, and a larger share of working-age population in future may help in reducing its current account deficit (CAD). These results highlight the importance of demographic variables in explaining and predicting changes in the CAB and its implication for the attainment of India’s macroeconomic objective of external stabilisation. JEL Classification: E21, F32, J11

Foreign Direct Investment and Current Account Deficit - A Causality Analysis in Context of India

2012 ◽  
Vol 13 (2) ◽  
pp. 85-106
Author(s):  
Manpreet Kaur ◽  
Surendra Yadav ◽  
Vinayshil Gautam
Keyword(s):  
Foreign Direct Investment ◽  
Granger Causality ◽  
Current Account ◽  
Direct Investment ◽  
Current Account Deficit ◽  
Impulse Response Function ◽  
Causality Analysis ◽  
Long Run ◽  
The Impact ◽  
The Relationship

Current Account Deficit is one of the major macroeconomic problems facing India. In this paper, we have tried to investigate the relationship between Foreign Direct Investment (FDI) and current account in the context of India. Using the Toda-Yamamoto (T-Y) granger causality technique for the period 1975-2009, our results indicate that FDI and current account are co-integrated in the long run. There is evidence of unidirectional causality from FDI to current account. Furthermore, the analysis of FDI and international trade components (Exports and Imports), which are the major constituents of current account, supports our results of granger causality. Also, an attempt has been made to provide for the impact of FDI on current account through impulse response function.

THE CURRENT GROWTH EFFECT OF HEALTH TOURISM MARKET DEVELOPMENT IN TURKEY FOR THE EVALUATION ON CURRENT ACCOUNT DEFICIT

2021 ◽  
Vol 6 (11) ◽  
pp. 220-240
Author(s):  
Mustafa IŞIK ◽  
Yakup ÖZSEZER ◽  
Fikriye IŞIK
Keyword(s):  
Current Account ◽  
Current Account Deficit ◽  
National Income ◽  
Tourism Industry ◽  
Added Value ◽  
Growth Effect ◽  
Critical Threshold ◽  
Current Account Balance ◽  
Health Tourism ◽  
Tourism Sector

Tourism sector is one of the major driving forces to develop the Turkish economy which provides the positive contributions with new employment opportunities and the national income and payments. With aid of this developments in economy by tourism, it has also increased the interaction with alternative areas. Health Tourism is also one of the special areas in which provides to the country high added value and foreign currency exchange income. Since the revenue outcome by health tourism is reaching up to 100 billion dollars, the national policy of health tourism enable countries has been undertaken as a high interested point of investment needed area. The critical threshold of the country’s Gross Domestic Product (GDP) is 4 to 5 percent as a current account balance and this deficient outcome in Turkey mostly takes on 5 to 4 percent which is a considered as a critical threshold. Health Tourism is expected to play a key role in bringing the values to the positive levels and therefore the focus is becoming on this area by health sector. Developing countries such as India, Singapore, and Thailand meet their foreign trade deficits with the income where they have obtained from this specific sector and the level of growth in this sector is at certain rate every year. The health Tourism is very crucial and significant sector for such a country Turkey, who has current budget deficit, and it is real economic sense. With Covid-19 crisis, the plans related with health tourism is re-evaluated by the coordination between Turkish Ministry of Health, Ministry of Tourism and Ministry of Economy. Especially, with the infrastructure works carried for public and city hospitals has been capable of providing health tourism services within the organization which is called “USHAŞ (International Health Services)”. The health tourism sector offers significant opportunities for Turkey during Covid-19 pandemic effects on our current account deficit and the decline in economic recovery of our tourism industry and losses. With health tourism created opportunities is already in an increasing trend, to contribute to the country’s economy much faster by increasing target markets with public-private cooperation.

What Explains Current Account Surplus in Korea?

2018 ◽  
Vol 17 (2) ◽  
pp. 70-93
Author(s):  
Chirok Han ◽  
Kwanho Shin
Keyword(s):  
Exchange Rate ◽  
Fiscal Policy ◽  
Current Account ◽  
Current Account Balance ◽  
Budget Deficits ◽  
Current Account Surplus ◽  
Short Run ◽  
The Right ◽  
The Impact ◽  
The Current Account

Since the currency crisis in 1998, Korea has experienced continuous current account surpluses. Recently, the current account surplus increased more rapidly—amounting to 7.7 percent of GDP in 2015. In this paper, we investigate the underlying reasons for the widening of Korea's current account surpluses. We find that the upward trend in Korea's current account surpluses is largely explained by its demographical changes. Other economic variables are only helpful when explaining short run fluctuations in current account balances. Moreover, we show that Korea's current account surplus is expected to disappear by 2042 as it becomes one of the most aged economies in the world. Demographic changes are so powerful that they explain, quite successfully, the current account balance trends of other economies with highly aged populations such as Japan, Germany, Italy, Finland, and Greece. When we add the real exchange rate as an additional explanatory variable, it is statistically significant with the right sign, but the magnitude explained by it is quite limited. For example, to reduce the current account surplus by 1 percentage point, a 12 percent depreciation is needed. If Korea's current exchange rate is undervalued 4 to 12 percent less than the level consistent with fundamentals, it is impossible to reduce Korea's current account surplus to a reasonable level by adjusting the exchange rate alone. Another way to reduce current account surplus is to expand fiscal policies. We find, however, that the impact of fiscal adjustments in reducing current account surplus is even more limited. According to our estimates, reducing the current account surplus by 1 percentage point requires an increase in budget deficits (as a ratio to GDP) of 5 to 6 percentage points. If we allow endogenous movements of exchange rate and fiscal policy, the impact of exchange rate adjustment increases by 1.6 times but that of fiscal policy decreases that it is no longer statistically significant.

scholarly journals Explaining India’s current account deficit: a time series perspective

2019 ◽  
Vol 26 (1) ◽  
pp. 117-138
Author(s):  
Harendra Kumar Behera ◽  
Inder Sekhar Yadav
Keyword(s):  
Current Account ◽  
Unit Root ◽  
Current Account Deficit ◽  
Structural Break ◽  
Current Account Balance ◽  
Fiscal Deficit ◽  
Causality Test ◽  
Content Type ◽  
Financial Account ◽  
Cointegration Tests

Purpose The purpose of this paper is to examine the issue of high current account deficit (CAD) from various perspectives focussing its behaviour, financing pattern and sustainability for India. Design/methodology/approach To begin with the trends, composition and dynamics of CAD for India are analysed. Next, the influence of capital flows on current account is investigated using Granger non-causality test proposed by Toda and Yamamoto (1995) between current account balance (CAB) to GDP ratio and financial account balance to GDP ratio. Also, the sustainability of India’s current account is examined using different econometrics techniques. In particular, Husted’s (1992), Johansen’s cointegration and vector error correction model (VECM) is applied along with conducting unit root and structural break tests wherever applicable. Further, long-run and short-run determinants of the CAB are estimated using Johansen’s VECM. Findings The study found that the widening of CAD is due to fall in household financial savings and corporate investments. Also, it was found that a large part of India’s CAD has been financed by FDI and portfolio investments which are partly replaced by short-term volatile flows. The unit root and cointegration tests indicate a sustainable current account for India. Further, econometric analysis reveals that India’s current account is driven by fiscal deficit, terms of trade growth, inflation, real deposit rate, trade openness, relative income growth and the age dependency factor. Practical implications Since India’s CAD has widened and is expected to widen primarily due to rise in gold and oil imports, policy makers should focus on achieving phenomenal export growth so that a sustainable current account is maintained. Also, with rising working-age and skilled population, India should focus more on high-value product exports rather than low-value manufactured items. Further, on the structural side it is important to correct fiscal deficit as it is one of the important factors contributing to large CAD. Originality/value The paper is an important empirical contribution towards explaining India’s CAD over time using latest and comprehensive data and econometric models.

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