Sustainability of the current account in Bangladesh: an Intertemporal and cointegration analysis

Md Wadud, S. M. Atiar Rahman and Mohd. Mozammel Hossain Chowdhury
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S. M. Atiar Rahman: Institute of Bangladesh Studies, Bangladesh
Mohd. Mozammel Hossain Chowdhury: Higher Education Quality Enhancement Project (HEQEP), Bangladesh

Journal of Developing Areas, 2015, vol. 49, issue 1, 353-364

Abstract: This paper aims to assess the sustainability of the current account of Bangladesh over the period of 1982-2012 using the intertemporal solvency model of Hakkio and Rush (1991) and Husted (1992). This approach examines the relationship between exports and imports plus unilateral transfer payments. We apply Johansen cointegration test and Dynamic Ordinary Least Square (DOLS) to evaluate the sustainability. Cointegration between inflows and outflows of current account implies that the intertemporal budget constraint is satisfied. Results of the Johansen cointegration test imply that there is a cointegrating relationship between exports and imports plus unilateral transfer payments. This indicates that Bangladeshs current account is sustainable but result of DOLS estimation reveals that it is weakly sustainable.

Keywords: Sustainability; Current Account Balance; Cointegration; Dynamic Ordinary Least Square (DOLS) and Bangladesh (search for similar items in EconPapers)
JEL-codes: C32 F32 F41 (search for similar items in EconPapers)
Date: 2015
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Persistent link: https://EconPapers.repec.org/RePEc:jda:journl:vol.49:year:2015:issue1:pp:353-364

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