Revisiting the Determinants of Current Account Balances in Emerging Market Economies

Juan Jose Battaglia

No 2026/0433, Working Papers REM from ISEG - Lisbon School of Economics and Management, REM, Universidade de Lisboa

Abstract: This paper examines the determinants of current account balances in a panel of 45 emerging market economies over the period 1986–2024, drawing on the IMF External Balance Assessment (EBA) framework. The results identify fiscal balances, real exchange rate dynamics, foreign exchange intervention, and foreign direct investment as the most robust determinants of current account outcomes. Fiscal balances emerge as a particularly strong and robust determinant of current account outcomes in the emerging-market sample. The findings remain broadly unchanged across alternative specifications and robustness exercises. Local projection estimates further indicate that fiscal balances and the share of foreign direct investment in external liabilities of a country exert the most systematic effects on current account adjustment. Overall, the results suggest that estimating current account models exclusively for emerging economies provides additional insights beyond those obtained from pooled advanced and emerging economy samples.

Keywords: Current Account; External Balance Assessment; Emerging Markets; Foreign Exchange Intervention; Foreign Direct Investment. (search for similar items in EconPapers)
JEL-codes: C23 F32 F41 F62 (search for similar items in EconPapers)
Date: 2026-09
New Economics Papers: this item is included in nep-fdg
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Persistent link: https://EconPapers.repec.org/RePEc:ise:remwps:wp04332026

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