Effect of Selected Macroeconomic and Financial Indicators on Current Account Balance: The Case of Developing Countries
Effect of Selected Macroeconomic and Financial Indicators on Current Account Balance
DOI:
https://doi.org/10.5281/zenodo.18089543Keywords:
Current Account Balance, Exchange Rate, Developing Countries, Panel Data AnalysisAbstract
Purpose – This study aims to identify the factors affecting current account balance in developing countries in terms of selected financial and macroeconomic indicators. The current account balance, which is an important indicator of macroeconomic stability and a country's economic relations with other countries, can especially be sensitive to fluctuations in exchange rates and capital flows in developing countries. Hence, it must be carefully observed to provide consistent economic growth and manage requirement for foreign funds and economic fragility.
Design/data/methodology – Using annual data for the period 1996–2024, a Panel ARDL model was estimated for six developing economies — Brazil, India, Indonesia, Mexico, Russia, and Turkey. Considering the presence of cross-sectional dependency and heterogeneity, the estimations were carried out using the Common Correlated Effects Mean Group (CCE-MG) estimator proposed by Pesaran (2006).
Findings – The findings obtained from the panel ARDL analysis indicate that gross savings/GDP, trade balance/GDP, and dollar-based exchange rates have a positive effect on the current account balance/GDP ratio, while economic growth has a negative effect. All findings are statistically significant.
Originality/value – This study applies the Panel ARDL–CCE estimator, a technique used in limited literature, to a sample of six developing countries covering a wide geographical area, providing a comparative analysis of current account balance dynamics. In this respect, the study is considered both methodologically innovative and instructive for policymakers.
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