Determinants of current account balances: an empirical investigation using dynamic panel data

This study investigates the influence of theoretical and empirical determinants on the dynamics of current account balances across seventy-four economies, analyzed in two groups: emerging economies and Organisation for Economic Co-operation and Development (OECD) countries. To achieve this objective, we employ a dynamic panel data methodology using Difference Generalized Method of Moments (GMM) models. The results suggest that, for emerging economies, improved external integration and reduced public debt positively affect external adjustment. A 1% improvement in these fundamentals is associated with a 0.12% and 0.18% enhancement in current account balances, respectively. Furthermore, trade volume, private credit to the central government, and foreign direct investment play distinct roles in external adjustment for emerging economies compared to the OECD group.