Investment incomes vs. the trade balance: Is the current account still a meaningful concept? (Konstantin Wacker)

Konstantin Wacker

Working Papers from Oesterreichische Nationalbank (Austrian Central Bank)

Abstract: This paper documents that cross-border investment income flows are important for explaining current account balances in major economies. Those investment incomes reflect returns on cross-border asset holdings and on balance often reach magnitudes around 5% of major economies’ gross domestic product. I show that several correlates of this investment income balance differ from other current account components, including the trade balance. Both components essentially exhibit a zero correlation with each other, with considerable crosscountry heterogeneity. Moreover, I show that investment incomes are more persistent than other current account components, suggesting that more time is needed for current account imbalances to adjust.

Keywords: Global imbalances; current account; international investment position; balance of payments (search for similar items in EconPapers)
JEL-codes: F21 F3 F45 (search for similar items in EconPapers)
Date: 2024-04-11
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