Cardiff University | Prifysgol Caerdydd ORCA
Online Research @ Cardiff 
WelshClear Cookie - decide language by browser settings

On the relationship between domestic saving and the current account: Evidence and theory for developing countries

Brueckner, Markus, Paczos, Wojtek and Pappa, Evi 2019. On the relationship between domestic saving and the current account: Evidence and theory for developing countries. Journal of Money, Credit and Banking 10.1111/jmcb.12658
Item availability restricted.

[img] PDF - Accepted Post-Print Version
Restricted to Repository staff only until 24 October 2021 due to copyright restrictions.

Download (271kB)

Abstract

We examine the relationship between domestic saving and the current account in developing countries. Our three main findings are that: (i) domestic saving has a small effect on the current account; (ii) domestic saving has a significant positive effect on the trade balance—this effect is much larger than the effect that domestic saving has on the current account; and (iii) domestic saving has a significant negative effect on net‐current transfers. We use countries in the SSA region during the period 1980‐2009 as a laboratory for an instrumental variables (IV) approach. The IV approach enables to obtain estimates of causal effects. Underlying the IV approach is the significant positive first‐stage response of domestic saving to plausibly exogenous annual rainfall: an unanticipated, transitory supply‐side shock. We construct a small open‐economy DSGE model with debt adjustment costs and endogenous current transfers to match the empirical findings. The model enables to examine the relationship between domestic saving and the current account for different types of shocks. An important message of our paper is that, for developing countries, estimates of the relationship between domestic saving and domestic investment are not informative for answering the question how domestic saving affects a country's accumulation of net foreign assets.

Item Type: Article
Date Type: Published Online
Status: In Press
Schools: Business (Including Economics)
Publisher: Wiley
ISSN: 0022-2879
Date of First Compliant Deposit: 15 April 2019
Date of Acceptance: 28 March 2019
Last Modified: 06 Feb 2020 16:59
URI: http://orca.cf.ac.uk/id/eprint/121781

Actions (repository staff only)

Edit Item Edit Item

Downloads

Downloads per month over past year

View more statistics