Hostname: page-component-78c5997874-xbtfd Total loading time: 0 Render date: 2024-11-05T10:24:36.965Z Has data issue: false hasContentIssue false
  • English
  • Français

Determinants of the Current Account Balances among Central and Eastern European Countries in the European Union

Published online by Cambridge University Press:  14 February 2019

Donny Tang
Donny Tang*
Affiliation:
Department of Economics, Temple University, 1301 Cecil B. Moore Avenue, Philadelphia, PA19122-6091, USA. Email: [email protected]
Get access Rights & Permissions [Opens in a new window]

Abstract

This study examines whether the financial market development and integration have affected the current account balances in the European Union (EU) countries in Central and Eastern Europe (CEE) during 1996–2015. First, the results suggest that the higher bank credit flows have resulted in the current account deficits especially after EU accession. The larger pool of bank lending flows due to the foreign mergers and acquisitions has helped finance domestic investment. This has led to the larger current account deficits. Second, the results indicate that the larger stock market size due to EU accession has caused current account surpluses rather than deficits. This contradicts the findings of previous studies, which find that higher financial market development leads to current account deficit. Finally, the result confirms that financial integration has facilitated higher current account deficits. The European Monetary Union has eliminated the regulatory restrictions on cross-border capital flows. The increase in foreign capital inflows has helped finance the growing local consumption and investment needs, which has made the CEE countries run the larger current account deficits.

Type
Articles
Information
European Review , Volume 27 , Issue 2 , May 2019 , pp. 220 - 245
Copyright
© Academia Europaea 2019 

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

1. Slavov, S.T. (2009) Do common currencies facilitate the net flow of capital among countries? North American Journal of Economics and Finance, 20(2), pp. 124–144.10.1016/j.najef.2009.03.003Google Scholar
2. Cuestas, J.C. (2013) The current account sustainability of European transition economies. Journal of Common Market Studies, 51(2), pp. 232–245.10.1111/j.1468-5965.2012.02309.xGoogle Scholar
3. Aristovnik, A. (2008) Short-term determinants of current account deficits evidence from Eastern Europe and the former Soviet Union. Eastern European Economics, 46(1), pp. 24–42.10.2753/EEE0012-8775460102Google Scholar
4. Herrmann, S. and Winkler, A. (2009) Financial markets and the current account: Emerging Europe versus emerging Asia. Review of World Economics/Weltwirtschaftliches Archiv, 145(3), pp. 531–550.10.1007/s10290-009-0025-2Google Scholar
5. Hobza, A. and Zeugner, S. (2014) Current accounts and financial flows in the Euro Area. Journal of International Money and Finance, 48(B), pp. 291–313.10.1016/j.jimonfin.2014.05.019Google Scholar
6. Hope, D. (2016) Estimating the effect of the EMU on current account balances: A synthetic control approach. European Journal of Political Economy, 44, pp. 20–40.10.1016/j.ejpoleco.2016.05.002Google Scholar
7. De Santis, R. and Cesaroni, T. (2016) Current account ‘core–periphery dualism’ in the EMU. World Economy, 39(10), pp. 1514–1538.10.1111/twec.12418Google Scholar
8. Hale, G. and Obstfeld, M. (2016) The Euro and the geography of international debt flows. Journal of European Economic Association, 14(1), pp. 115–144.10.1111/jeea.12160Google Scholar
9. Gehringer, A. (2015) New evidence on the determinants of current accounts in the EU. Empirica, 42(4), pp. 769–793.10.1007/s10663-014-9276-9Google Scholar
10. Duarte, P. and Schnabl, G. (2015) Macroeconomic policy making, exchange rate adjustment and current account imbalances in emerging markets. Review of Development Economics, 19(3), pp. 531–544.10.1111/rode.12168Google Scholar
11. Chinn, M.D., Eichengreen, B. and Ito, H. (2014) A forensic analysis of global imbalances. Oxford Economic Papers, 66(2), pp. 465–490.Google Scholar
12. Moral-Benito, E. and Roehn, O. (2016) The impact of financial regulation on current account balances. European Economic Review, 81, pp. 148–166.10.1016/j.euroecorev.2015.07.005Google Scholar
13. Chinn, M.D. and Prasad, E.S. (2003) Medium-term determinants of current accounts in industrial and developing countries: An empirical exploration. Journal of International Economics, 59(1), pp. 47–76.10.1016/S0022-1996(02)00089-2Google Scholar
14. Calderon, C., Chong, A. and Loayza, N. (2002) Determinants of current account deficits in developing countries. Contributions to Macroeconomics, 2(1), pp. 1021–1052.Google Scholar
15. Herrmann, S. and Winkler, A. (2009) Real convergence, financial markets, and the current account – emerging Europe versus emerging Asia. North American Journal of Economics and Finance, 20(2), pp. 100–123.10.1016/j.najef.2009.05.001Google Scholar
16. Reinhardt, D., Ricci, L.A. and Tressel, T. (2013) International capital flows and development: Financial openness matters. Journal of International Economics, 91(2), pp. 235–251.10.1016/j.jinteco.2013.07.006Google Scholar
17. Steiner, A. (2014) Current account balance and dollar standard: Exploring the linkages. Journal of International Money and Finance, 41, pp. 65–94.10.1016/j.jimonfin.2013.10.005Google Scholar
18. Chinn, M.D. and Ito, H. (2007) Current account balances, financial development and institutions: Assaying the world ‘saving glut’. Journal of International Money and Finance, 26(4), pp. 546–569.10.1016/j.jimonfin.2007.03.006Google Scholar
19. Cerrato, M., Kalyoncu, H., Naqvi, N.H. and Tsoukis, C. (2015) Current accounts in the long run and the intertemporal approach: A panel data investigation. World Economy, 38(2), pp. 340–359.10.1111/twec.12152Google Scholar
20. Gruber, J. and Kamin, S. (2009) Do differences in financial development explain the global pattern of current account imbalance? Review of International Economics, 17(4), pp. 667–688.10.1111/j.1467-9396.2009.00842.xGoogle Scholar
21. Blanchard, O. and Giavazzi, F. (2002) Current account deficits in the Euro area: The end of the Feldstein-Horioka puzzle? Brookings Papers on Economic Activity, 2, pp. 147–186.10.1353/eca.2003.0001Google Scholar
22. Obstfeld, M. (2012) Financial flows, financial crises, and global imbalances. Journal of International Money and Finance, 31(3), pp. 469–480.10.1016/j.jimonfin.2011.10.003Google Scholar
23. Stiglitz, J.E. (2016) The Euro: How a Common Currency Threatens the Future of Europe (New York: W.W. Norton and Company).Google Scholar
24. Talani, L.S. (2016) The eurozone crisis: Between the global financial crisis and the structural imbalances. In: L.S. Talani (Ed.), Europe in Crisis: A Structural Analysis (London: Palgrave Macmillan).10.1057/978-1-137-57707-8Google Scholar
25. Tabellini, G. (2015) The main lessons to be drawn from the European financial crisis. In: R. Baldwin and F. Giavazzi (Eds), The Eurozone Crisis: A Consensus View of the Causes and a Few Possible Remedies (London: Center for Economic Policy Research).Google Scholar