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An empirical assessment of current accounts sustainability for major South Asian economies

An empirical assessment of current accounts sustainability for major South Asian economies The purpose of this paper is to assess the sustainability of current accounts for five major South Asian economies, namely, India, Pakistan, Bangladesh, Sri Lanka and Nepal, for the period 1985–2016.Design/methodology/approachThe study employs the intertemporal solvency model of Hakkio and Rush (1991) and Husted (1992). Autoregressive Distributed Lag bounds test, Gregory and Hansen’s test and Carrion-i-Silvestre and Sanso’s test are used to assess the cointegration between current account inflows and outflows. The coefficients of long-run relationship are obtained using dynamic ordinary least squares. Besides the econometric investigation, the study also examines some other indicators such as the composition of current account, size of external debt, etc., to shed further light on the sustainability of current accounts.FindingsThe study finds support for the long-run relationship between the current account outflows and inflows for all the countries. The estimates of slope coefficient indicate strong sustainability in case of India, Bangladesh and Nepal, whereas weak sustainability holds for Sri Lanka and Pakistan underscoring the need for policy interventions. In a comparative perspective, the current accounts in India, Nepal and Bangladesh conform more to a sustainable behavior in terms of the size of deficits, external debt stock and compliance to the intertemporal budget constraint.Originality/valueThe study employs econometric techniques allowing for structural breaks in the assessment of current account sustainability. Besides using the intertemporal model, the study also examines factors such as composition of current accounts, size of external debts, etc., to evaluate sustainability. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png South Asian Journal of Business Studies Emerald Publishing

An empirical assessment of current accounts sustainability for major South Asian economies

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Publisher
Emerald Publishing
Copyright
© Emerald Publishing Limited
ISSN
2398-628X
DOI
10.1108/sajbs-05-2017-0064
Publisher site
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Abstract

The purpose of this paper is to assess the sustainability of current accounts for five major South Asian economies, namely, India, Pakistan, Bangladesh, Sri Lanka and Nepal, for the period 1985–2016.Design/methodology/approachThe study employs the intertemporal solvency model of Hakkio and Rush (1991) and Husted (1992). Autoregressive Distributed Lag bounds test, Gregory and Hansen’s test and Carrion-i-Silvestre and Sanso’s test are used to assess the cointegration between current account inflows and outflows. The coefficients of long-run relationship are obtained using dynamic ordinary least squares. Besides the econometric investigation, the study also examines some other indicators such as the composition of current account, size of external debt, etc., to shed further light on the sustainability of current accounts.FindingsThe study finds support for the long-run relationship between the current account outflows and inflows for all the countries. The estimates of slope coefficient indicate strong sustainability in case of India, Bangladesh and Nepal, whereas weak sustainability holds for Sri Lanka and Pakistan underscoring the need for policy interventions. In a comparative perspective, the current accounts in India, Nepal and Bangladesh conform more to a sustainable behavior in terms of the size of deficits, external debt stock and compliance to the intertemporal budget constraint.Originality/valueThe study employs econometric techniques allowing for structural breaks in the assessment of current account sustainability. Besides using the intertemporal model, the study also examines factors such as composition of current accounts, size of external debts, etc., to evaluate sustainability.

Journal

South Asian Journal of Business Studies – Emerald Publishing

Published: Jul 5, 2018

Keywords: Cointegration; South Asia; Dynamic ordinary least squares; Sustainability of current accounts

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