How sustainable are current account deficits in selected transition economies?

Aristovnik, Aleksander (2006): How sustainable are current account deficits in selected transition economies? Published in: Journal of Economics , Vol. 55, No. 1 (2007): pp. 19-39.

Abstract

The article examines the issue of ‘current account sustainability’ in seventeen transition economies. For this purpose, two accounting frameworks (Milesi-Ferreti and Razin, 1996; Reisen, 1998) based on certain strict assumptions are employed. The results show that if the observed level of foreign direct investment (FDI) flows is kept in the medium run almost all countries could optimally have a higher level of external deficit, with the exception of countries such as Baltic States, Hungary, Macedonia, Moldova and Romania. Accordingly, the maintenance of relatively large FDI inflows (especially greenfield investments) to national economies is a key priority in securing future external sustainability. In the end, the results indicate that current account deficits of transition economies that exceed 5 percent of GDP generally involve problems of their external sustainability.

• Item Type: MPRA Paper
• Language: English
• Keywords: transition economies; current account deficits; sustainability; FDI
• Subjects: F - International Economics > F3 - International Finance > F32 - Current Account Adjustment ; Short-Term Capital Movements; F - International Economics > F4 - Macroeconomic Aspects of International Trade and Finance > F47 - Forecasting and Simulation: Models and Applications

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