How sustainable are current account deficits in selected transition economies?

Aleksander Aristovnik

MPRA Paper from University Library of Munich, Germany

Abstract: The article examines the issue of ‘current account sustainability’ in seventeen transition economies. For this purpose, two accounting frameworks (Milesi-Ferreti and Razin, 1996; Reisen, 1998) based on certain strict assumptions are employed. The results show that if the observed level of foreign direct investment (FDI) flows is kept in the medium run almost all countries could optimally have a higher level of external deficit, with the exception of countries such as Baltic States, Hungary, Macedonia, Moldova and Romania. Accordingly, the maintenance of relatively large FDI inflows (especially greenfield investments) to national economies is a key priority in securing future external sustainability. In the end, the results indicate that current account deficits of transition economies that exceed 5 percent of GDP generally involve problems of their external sustainability.

Keywords: transition economies; current account deficits; sustainability; FDI (search for similar items in EconPapers)
JEL-codes: F32 F47 (search for similar items in EconPapers)
Date: 2006-03-26
New Economics Papers: this item is included in nep-cba and nep-tra
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Citations: View citations in EconPapers (4)

Published in Journal of Economics 1.55(2007): pp. 19-39

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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:485

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