The sustainability of India's current account

Holmes, Mark J.; Panagiotidis, Theodore; Sharma, Abhijit

doi:10.1080/00036840802481876

Cited by 35 publications

(23 citation statements)

References 36 publications

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“…Yet another set of studies has provided mixed evidence on the long‐run relationship between exports and imports and the implied sustainability of CADs. This set includes the studies by Leachman and Thorpe () for Australia (1959:3–1983:4 and 1984:1–1996:1), Holmes () for 11 OECD countries (1980:1–2002:4), Konya () for three Central European countries (Czech Republic, 1993:1–2006:1 or 1994:1–2006:1; Hungary, 1990:1–2006:1 or 1995:1–2006:1; Slovenia, 1992:1–2006:1 or 1995:1–2006:1) and Holmes, Panagiotidis, and Sharma () for India (1950–2003). The number of studies supporting the presence of cointegration between exports and imports and suggesting the sustainability of CADs surpass the number of studies providing a contrary or mixed support (Singh, ).…”

Section: Perspectives On Ca: a Review Of The Literaturementioning

confidence: 93%

Intertemporal sustainability of current account imbalances: New evidence from the OECD countries

Singh

2019

Economic Notes

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This study estimates the intertemporal model for the relationship between exports and imports and examines the sustainability of current account deficits (CADs) and the validity of intertemporal budget constraint for 24 Organisation for Economic Co‐operation and Development countries. The standard ordinary least squares (OLS)‐based two‐step Engle and Granger test, the cointegration regression Durbin–Watson (CRDW) test, and the Stock–Watson test performed on the one‐regime model with time‐invariant parameters and no structural break provide mixed support for the presence of cointegration between exports and imports. The recursive least squares‐based cumulative sum of recursive residuals (CUSUM) and the cumulative sum of squares of recursive residuals (CUSUMSQ) tests and the OLS‐based Andrews‐Quandt (AQ) and Andrews – Ploberger (AP) tests suggest the presence of structural breaks in the long‐run relationship between exports and imports for a number of countries. The end‐of‐sample new cointegration breakdown tests performed on the OLS, fully modified OLS, and full‐information maximum‐likelihood estimates of the model suggest the presence of cointegration between exports and imports for most countries. The dominant support for cointegration between trade flows points toward the sustainability of CADs and the validity of intertemporal budget constraint. The macroeconomic stabilization policies seem to have been effective in correcting the market failures and maintaining the steady‐state equilibrium relationship between trade flows in the sample countries. The findings of this study have important implications for empirical research. The structural breaks in the cointegrating vector could occur even over the short time periods and at any point in time. It is essentially important to assess the sustainability of the external position in the presence of long‐period as well as short‐period breaks in the cointegrating vector.

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Section: Perspectives On Ca: a Review Of The Literaturementioning

confidence: 93%

Intertemporal sustainability of current account imbalances: New evidence from the OECD countries

Singh

2019

Economic Notes

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“…The country would be beset with debt overhang and be 'bubble financing' its debt repayments using the Ponzi schemes, if the present value of foreign debt outstanding at the end of time t exceeds the sum of the discounted values of all future net trade surpluses. The empirical evidence across countries remains mixed in that some studies support the sustainability of CADs and validity of IBC (Trehan and Walsh, 1991;Husted, 1992;Bergin and Sheffrin, 2000;Arize, 2002;Matsubayashi, 2005), (ii) some suggest the unsustainability of CADs and violation of IBC (Otto, 1992;Wickens and Uctum, 1993;Wu et al, 1996) and (iii) yet some others yield mixed results (Sawada, 1994;Raybaudi et al, 2004;Holmes, 2006;Konya, 2009;Holmes et al, 2011).…”

Section: Introductionmentioning

confidence: 93%

“…The external position again started deteriorating since the mid-2000s in that the CADs, as a percentage of GDP, progressively rose from 1% in 2006-2007 to 1.3% in 2007-2008, 2.3% in 2008-2009 and 2.8% in 2009-2010. Several studies have examined the CADs and external position in India in the wider context of macroeconomic assessment of the economy Little, 1994, 1996;Cerra and Saxena, 2002;Singh, 2002Singh, , 2004aAgarwal and Whalley, 2013). A highly limited attempt, however, has been made to assess the sustainability of CADs in an intertemporal Sustainability of current account deficits in India setting Cashin, 1999, 2002;Singh, 2004b;Holmes et al, 2011). Cashin (1999, 2002) follow intertemporal approach and find that the path of CAD in India during 1952-1999 has been consistent with intertemporal solvency in that it did not breach IBC.…”

Section: Introductionmentioning

confidence: 97%

“…An increase in prices relative to user cost of capital and the rise in real wealth lead to a deterioration, while the rise in real capital stock results in an improvement in trade balance (Singh, 2004b). Holmes et al (2011) examine the long-run relationship between imports and exports and find evidence in favour of a sustainable CA in the late 1990s. For the period prior to this, there is evidence against sustainability.…”

Section: Introductionmentioning

confidence: 98%

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Sustainability of current account deficits in India: an intertemporal perspective

Singh

2015

Applied Economics

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This study examines the sustainability of current account deficits (CADs) and the validity of intertemporal budget constraint (IBC) in India. The long-run model is estimated on annual data for the period 1950-1951 to 2009-2010. The optimal single-equation and maximum-likelihood (ML) system estimates of the model provide a consistent support for the longrun relationship between imports and exports. The OLSGH estimates provide no support and that ML system estimates a consistent support for cointegration in both the models estimated with one and two structural breaks in level. The new cointegration breakdown tests generally suggest that the cointegration prevails from 1951 to 2010. The evidence supporting the cointegration between imports and exports overwhelms the evidence providing a mixed or no support for cointegration. The estimates of slope parameter above zero and the dominant support for cointegration between imports and exports vindicate the validity of IBC and the sustainability of CADs. The short-term management strategies need to be accompanied by long-term improvements in productivity to reduce inflation, lever up the competitiveness of exports and ensure the sustainability of the external value of domestic currency.

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“…It is important for the current deficit to be reduced or at least become sustainable in order for the increase in social welfare and sustainable financial growth (Karunaratne, 2010;Takeuchi, 2010;Holmes et al, 2011;Chen, 2011). From this point on, the problem of Turkey's chronic current account deficit problem in the study will be examined by applying two broken Lee and Strazicich tests.…”

Section: Introductionmentioning

confidence: 99%

Sustainability of Current Account Deficit in Turkey and an Ampirical Analysys for Unit Root Test with Two Structural Breaks

Çiğdem¹

2017

IJEF

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In this study, Turkey’s current account deficit problem between the years 1980-2016 is tested whether it is sustainable or not. For this purpose, the ADF and the PP Unit Root test were applied firstly to the annual current account deficit (CAD)/GDP data from the IMF. Then, Lee Strazicich (2003, 2004) Unit Root Tests with two structural breaks was applied. Allowing Lee Strazicich with two structural breaks differs from the Zivot-Andrews (ZA)(1992) and Lumsdaine-Papell (LP) (1997) unit root tests in establishing the basic hypothesis. The ZA and LP unit root tests are based on the basic hypothesis of unit root existence without structural fracture. Based on the Lagrange multiplier proposed by Schmidt and Phillips (1992), LM unit root test with two structural breaks developed by Lee-Strazicich adopted the structural fractured unit root basic hypothesis.According to the ADF and PP test results, the CAD/GDP series is stationary at the level for both models. According to the LM test results, the unit root null hypothesis could be rejected. It is a stationary process in Turkey. This result is consistent with the ADF and PP test results. Empirical findings obtained from LM unit root test with two structural breaks show that current account deficits in Turkey are sustainable. The fact that the current account deficit is sustainable means the sustainability of external debts. The sustainability of deficit is one of the most emphasized issues especially from the perspective of countries which are dependent on foreign capital to finance their development and also crucial for the global system.

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The sustainability of India's current account

Cited by 35 publications

References 36 publications

Intertemporal sustainability of current account imbalances: New evidence from the OECD countries

Intertemporal sustainability of current account imbalances: New evidence from the OECD countries

Sustainability of current account deficits in India: an intertemporal perspective

Sustainability of Current Account Deficit in Turkey and an Ampirical Analysys for Unit Root Test with Two Structural Breaks

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