LONG-RUN SUSTAINABILITY OF CURRENT ACCOUNT BALANCE: EVIDENCE FROM TWENTY NORTH AND LATIN AMERICAN ECONOMIES

Jamal Husein and Chuck Pier

Applied Econometrics and International Development, 2019, vol. 19, issue 2, 75-90

Abstract: . This paper investigates the long-run sustainability of the current account imbalance for twenty North and Latin American economies over the 1970-2016 period. We utilize the intertemporal budget constraint (IBC) model to explain the behavior of the current account in these countries. We employ unit root tests that allow for endogenously determined structural breaks and utilize several cointegration techniques including the bounds cointegration procedure to the analysis of level relationships. The empirical results indicate that there exists a long-run relationship between imports and exports for eleven out of the twenty countries examined. The results of this study confirm that macroeconomic policies for Argentina, Bolivia, Colombia, Costa Rica, the Dominican republic, El Salvador, Guatemala, Honduras, Nicaragua, Paraguay and the USA have been effective in the long-run and suggests that they are not in violation of their international budget constraints. Moreover, we found evidence that the cointegration coefficient is unity in four of the eleven countries where cointegration is present. CUSUM and CUSUMSQ tests do not indicate any instability in the estimated equations.

Keywords: Trade Balance, Bounds Test; Cointegration, Hansen-Johansen Stability. (search for similar items in EconPapers)
JEL-codes: C22 C32 F10 F14 (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (1)

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