Title: Impact of GDP volatility on current account balances

Authors: Michał Brzozowski; Sadananda Prusty

Addresses: Faculty of Economic Sciences, University of Warsaw, Długa 44/50, 00-241 Warszawa, Poland ' Institute of Management Technology, Ghaziabad – 201 001, Uttar Pradesh, India

Abstract: This paper reports on an empirical investigation of the impact of GDP volatility on current account balances for a large sample of developed and developing countries. We extend the standard set of short- and long-term determinants of current accounts to include GDP volatility computed from the annual growth rate of GDP. We found that for low income countries, the impact of GDP volatility on their current account balances is negative, whereas the reverse is true for high income countries. The intertemporal approach to the balance of payments followed in this paper suggests that a diverse response of current account balances to GDP volatility can result from the various degrees of shock persistence in developed and developing countries.

Keywords: GDP volatility; gross domestic product; current account balances; savings; investment; balance of payments.

DOI: 10.1504/IJEBR.2013.052481

International Journal of Economics and Business Research, 2013 Vol.5 No.3, pp.239 - 252

Published online: 30 Dec 2013 *

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