Sustainability of current accounts in Arabic countries : evidence from panel cointegration

Abstract EN

The objective of this paper is to investigate the sustainability of current account imbalances by using the data of twenty one Arabic countries over the 2000-2013 periods.

Sustainability of current account for Arabic countries is analyzed under intertemporal borrowing constraint (IBC) (Husted 1992) approach by performing an empirical analysis of Pedroni (1999) and Kao (1999) panel cointegration between exports and imports plus net transfer payments plus net interest payments ; The empirical results of panel cointegration test show that these variables are cointegrated for whole period.

To find regression coefficient we use panel OLS ; FMOLS and DOLS estimators.

It is found that the coefficient is not significantly equal to one but very close to one in FMOLS regression but is significantly equal to one in DOLS regression.

The overall results provide evidence in favour of the sustainability of the current account for all the Arabic countries as a group.