Title: Current Account convergence in the Western Balkans

Authors: Sandra Hlivnjak; Nick Adnett

Addresses: Central Bank of Bosnia and Herzegovina, Mehmeda Spahe 3, 71000 Sarajevo, Bosnia and Herzegovina. ' Staffordshire University Business School, Leek Road, Stoke-on-Trent ST4 2DF, UK

Abstract: The Maastricht criteria with their focus on nominal and macroeconomic convergence are important conditions that Western Balkan (WB) countries have to comply with. A significant threat to convergence of these countries is their large and persistent Current Account (CA) deficits. In this paper, an assessment of CA sustainability in this region is conducted by refining the concept of a sustainable CA deficit through application of a stationary condition and mean reversion proposition. A stationary CA to Gross Domestic Product ratio is argued to be consistent with a finite external debt to GDP ratio. The rate of convergence of the CA rate to its steady state is estimated for each of the WB countries. We find that four of the five WB countries have met the minimum requirement for CA sustainability.

Keywords: current account deficits; sustainability; mean reversion; Western Balkans; Maastricht criteria; sustainable development; convergence; emerging economies.

DOI: 10.1504/IJEPEE.2012.045437

International Journal of Economic Policy in Emerging Economies, 2012 Vol.5 No.1, pp.82 - 103

Received: 09 Apr 2011
Accepted: 09 Jul 2011
Published online: 15 Nov 2014 *

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