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

Shruti Shastri (Department of Economics, Banasthali Vidyapith, Jaipur, India)
A.K. Giri (Department of Economics, Central University of Rajasthan, Ajmer, India)
Geetilaxmi Mohapatra (Department of Economics and Finance, Birla Institute of Technology and Science (BITS), Pilani, India)

South Asian Journal of Business Studies

ISSN: 2398-628X

Article publication date: 15 June 2018

Issue publication date: 5 July 2018

202

Abstract

Purpose

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/approach

The 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.

Findings

The 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/value

The 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.

Keywords

Citation

Shastri, S., Giri, A.K. and Mohapatra, G. (2018), "An empirical assessment of current accounts sustainability for major South Asian economies", South Asian Journal of Business Studies, Vol. 7 No. 2, pp. 172-188. https://doi.org/10.1108/SAJBS-05-2017-0064

Publisher

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Emerald Publishing Limited

Copyright © 2018, Emerald Publishing Limited

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