Current Account determinants in Southeast European (SEE) countries – panel approach

Abstract

The aim of this paper is to examine the relation between the current account balance and its determinants for a sample of 9 SEE countries (Bulgaria, Croatia, Romania, Moldova, Serbia, Bosnia and Herzegovina, Macedonia, Montenegro, and Albania) over the period from 2000 to 2015. After we had established the existence of panel cointegration in the sample, we estimated cointegration equations using FMOLS and DOLS estimator. The results show that real effective exchange rate appreciation had an adverse effect on the current account, while the net inflow of direct foreign investments has a positive impact, as private remittances. The survey also confirmed that the current account deficit in the SEE countries is persistent. The results indicate that the structural changes in the SEE countries should be carried out in order to reduce the CA deficit. Also, the appreciation of the national currency should be avoided, since it will lead to an increase in the CA deficit.

Keywords

• current account
• persistence
• real effective exchange rate
• fiscal balance
• SEE countries