INTERACTION BETWEEN CAPITAL FLOWS AND CURRENT ACCOUNT: A DYNAMIC PANEL CAUSALITY ANALYSIS OF 19 EMERGING MARKET ECONOMIES FOR THE PERIOD 1980 TO 2009

Ayse Yalta and Bahar Bayraktar-Saglam

Applied Econometrics and International Development, 2016, vol. 16, issue 2, 25-32

Abstract: We empirically examine the causal relation between current account and different types of foreign capital flows applying a dynamic panel causality approach, which enables us to deal with the endogeneity between foreign capital flows and current account. Our analysis based on 19 emerging market economies indicates that foreign direct investment and portfolio flows Granger-cause current account. This finding raises questions regarding the sustainability of current account deficits in emerging market economies, which rely on foreign capital inflows for financing the deficit.

Keywords: current account; capital flows; panel causality; dynamic panel. (search for similar items in EconPapers)
JEL-codes: F32 F41 (search for similar items in EconPapers)
Date: 2016
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