Current accounts and oil price fluctuations in oil-exporting countries: The role of financial development

Abstract

Oil-exporting countries usually experience large current account improvements following a sharp increase in oil prices. In this paper, we investigate this oil price-current account relationship on a sample of 27 oil-exporting economies. Relying upon the estimation of panel smooth transition regression models over the 1980-2010 period, we provide evidence that refines the traditional interpretation of oil price effects on current accounts. While current accounts are positively affected by oil price variations, this effect is nonlinear and depends critically on the degree of financial development of oil-exporting economies. More specifically, oil price variations exert a stronger impact on the current account position for less financially developed countries, this influence diminishing with financial deepness.

Exchange rate misalignments and the external balance under a pegged currency system

“…Moreover, the literature shows that the relative growth and demographic variables are negatively related to the current account (Chinn & Prasad, ; Christiansen, Prati, Ricci, & Tressel, ; Phillips et al, , among others). The negative relationship between financial deepening and the current account is also in line with several empirical studies (Gruber & Kamin, ; Cheung, Furceri & Rusticelli, ; Allegret, Couharde, Coulibaly, & Mignon, ), including those on the Sub‐Saharan African (SSA) countries (Gnimassoun, ). More trade openness is also often associated with a current account deficit (see Chinn & Prasad, ; Arezki & Hasanov, ; Allegret et al, , among others).…”

The Great Plunge in Oil Prices: Causes, Consequences, and Policy Responses

“…The deterioration of current account balances could be attenuated by well-developed financial systems (Allegret et al 2014). Over the medium-to long term, FDI flows to the energy and extractive sector, which contributed significantly to dynamic capital inflows to Sub-Saharan Africa and other developing regions in recent years, may decline if new oil and gas projects become unviable at current oil price levels.…”

What is new? The role of asymmetry and breaks in oil price–output growth volatility nexus

“…For instance, Allegret et al . () focused on current account position. Awartani and Maghyereh (), Jouini and Harrathi () and Salisu and Isah () analyses were centred on stock price– oil price shock.…”

“…Some of these studies found a significant and robust effect of oil price shock on some macroeconomic variables. For instance, Allegret et al (2014) focused on current account position. Awartani and Maghyereh (2013), Jouini and Harrathi (2014) and Salisu and Isah (2016) analyses were centred on stock price-oil price shock.…”