Global Imbalances: The Role of Institutions, Financial Development and FDI in the Context of Financial Crises

Carlos A. Silva, Xavier Ordeñana, Paul Vera-Gilces and Alfredo Jiménez
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Carlos A. Silva: Department of Economics and Related Studies, University of York, York YO10 5DD, UK
Xavier Ordeñana: ESPAE Escuela de Negocios de la ESPOL, Malecón 100 y Loja, Guayaquil 090313, Ecuador
Paul Vera-Gilces: ESPAE Escuela de Negocios de la ESPOL, Malecón 100 y Loja, Guayaquil 090313, Ecuador
Alfredo Jiménez: Department of Management, KEDGE Business School, 33405 Bordeaux, France
Authors registered in the RePEc Author Service: Paul Vera Gilces

Sustainability, 2021, vol. 13, issue 1, 1-20

Abstract: This paper examines the role of the quality of institutions, financial development and FDI on current account imbalances, which narrowed during the Global Financial Crisis. In doing so, we utilize ( i ) a sample of 49 advanced and emerging economies during 1984–2014; ( ii ) a novel three-clustered indices of institutional quality and ( iii ) two measures of financial development, the share of FDI and a measure of financial crisis in addition to standard determinants of the current account. We find that the better the quality of institutions and the greater the financial development, the larger are current account deficits; meanwhile, FDI contributes to boost current account balances. Moreover, financial crisis episodes tend to improve current account balances, particularly for countries that are highly open to trade and to receive FDI, as in the case of advanced economies and East Asian countries.

Keywords: current accounts; financial crises; capital inflows; global imbalances (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:gam:jsusta:v:13:y:2021:i:1:p:356-:d:473963

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