This document aims to determine the empirical link between current account balances and a set of economic variables proposed by the theoretical and empirical literature. To do this, we first use a generalized method of moments (GMM) dynamic panel regression technique to identify the key fundamentals of current account balances in certain economies in the Middle East and North Africa (MENA) region. Next, we estimate the link between exports and imports in order to test the sustainability of current account balances. To do this, the authors estimate a threshold cointegration model on a sample of 12 countries from the MENA region over the period 1970–2018. Nevertheless, the results show that the countries of the MENA region must put in place policies aimed at reducing their current account deficits in order to regain their external stability.
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We use the unit root test to examine the sustainability of the current account balance. If the current account deficit of a country increases for an unforeseeable long time, the probability of a country defaulting on external debt is high.
Chortareas et al. (2003) indicate that there are at least three channels that perform the current balance series a nonlinear process. The first source of nonlinearity is the twin-deficit channel. A second channel that leads to nonlinearity is the level of a country's indebtedness, which reflects the willingness of foreign lenders to hold domestic assets. The third channel results from the transaction cost.
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The authors would like to express gratitude to the editor and anonymous referees for their insightful comments and suggestions which were useful in improving the quality of this paper. Any remaining errors are ours.
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The data used in this article come from different sources. Below, we provide a list of abbreviations for the variables used in the analysis, along with a description of the variables and the source(s) from which the primary data used to construct these variables was drawn.
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Bousnina, R., Redzepagic, S. & Gabsi, F.B. Sustainability of current account balances in MENA countries: threshold cointegration approach. Econ Change Restruct 54, 241–264 (2021). https://doi.org/10.1007/s10644-020-09278-5
- Current account
- Threshold autoregressive
- Budget constraint