Current Account Balances and Non-financial Corporate Savings—A Cross-Country Perspective

Purna Banerjee () and Sonalika Sinha
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Purna Banerjee: Reserve Bank of India

A chapter in Studies in International Economics and Finance, 2022, pp 347-364 from Springer

Abstract: Abstract As non-financial corporate sector savings tend to increase globally, its effect on the current account balance assumes particular significance for macrofinancial stability. This study investigates the relationship between current account balance and (non-financial) corporate savings for a panel of developed and developing countries. Using a system GMM model, we find that average current account increases by 0.32% when non-financial corporate savings increase by 1%. Our results are robust to controlling for household sector and government net savings. While the nature of relationship varies across developed versus developing economies, we find that outward flow of FDI and net investment income are plausible channels through which the non-financial corporate savings impact a country’s current account, where corporate savings are affected more by their own income effect compared to a relative price effect. A country’s demographic characteristics and currency strength are important determinants driving this relationship.

Keywords: Current account balance; Non-financial corporates; Sectoral financial balances (search for similar items in EconPapers)
JEL-codes: D15 E21 F41 G32 (search for similar items in EconPapers)
Date: 2022
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Persistent link: https://EconPapers.repec.org/RePEc:spr:isbchp:978-981-16-7062-6_19

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DOI: 10.1007/978-981-16-7062-6_19

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