Degree of sustainability of current account: evidence from Côte d’Ivoire using a non-linear approach

Abstract

The current account deficit is a macroeconomic indicator that provides information on the health of an economy. Its sustainability is particularly crucial for developing countries such as Côte d'Ivoire, one of the largest economies in West Africa. Given the country's exposure to external vulnerability, this paper analysed the degree of sustainability of its current account. Beyond this, the study looked at the resilience of the economy to external shocks by examining how exports behave following an asymmetric shock on imports plus interest on external borrowing. To this end, the model developed by Shin et al. (2014) was applied to the intertemporal approach to current account sustainability using quarterly macroeconomic data from 1985q1 to 2017q4. The study found that Côte d'Ivoire's current account balance is sustainable. However, this sustainability is weak in the sense of Hakkio and Rush (1991), thus leading to a high risk of government failure in this respect. Also, the study shows that exports react differently to asymmetric shocks on increased imports, with a return to equilibrium often very slow. Therefore, the strengthening and stability of the socio-political environment is to be encouraged, as well as the implementation of policies aimed at sound public finance management and minimising the economy's vulnerability to external shocks.

Remote Sensing Evidence for Significant Variations in the Global Gross Domestic Product during the COVID-19 Epidemic

“…Côte d'Ivoire is one of the largest economies in West Africa. It mainly depends on agriculture production [54]. Nearly one-fifth of its GDP is generated by primary industry.…”

Non-Linearity in Sustainability of Current Account Balance in Turkey

“…Over time, a vast empirical literature has accumulated on measuring and testing the sustainability of the current account balance of a country or a group of countries. Following a pioneering work of Trehan and Walsh (1991), the empirical literature on testing the sustainability of current account for a country or group of countries has been developed in two strands, namely unit root and cointegration testing (Dissou and Nafie, 2019;Kouadio and N'Guessan, 2021). Some of the examples of these studies include Husted (1992), Wickens and Uctum (1993), Wu et al (1996), Apergis et al (2000), Wu (2000), Wu et al (2001), Kalyoncu (2005).…”

“…For this reason, recent studies began to employ nonlinear unit root tests and nonlinear cointegration methods in testing the sustainability of CAD. Examples of these studies are Holmes et al (2011), Dissou and Nafie (2019), Kouadio and N'Guessan (2021), Chen and Xie (2015), Chortareas et al (2004). In the literature, researchers have used various nonlinear methodologies to incorporate nonlinearity in testing the sustainability of the current account.…”

“…In the literature, researchers have used various nonlinear methodologies to incorporate nonlinearity in testing the sustainability of the current account. Dissou and Nafie (2019) and Kouadio and N'Guessan (2021) have employed the asymmetric autoregressive distributed lag (or NARDL) model to test the sustainability of current accounts based on the model suggested by Husted (1992).…”