Growth Following Investment and Consumption-Driven Current Account Crises

Author/Editor: Alexander Klemm
Publication Date: October 23, 2013
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Disclaimer: This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate
Summary: Current account deficits imply increasing liabilities to the rest of the world. External sustainability then depends on whether these can be met in the future without defaulting, i.e., normally through trade account surpluses. To run such surpluses without a fall in consumption, capital inflows should be used to increase future output. This paper tentatively finds that current account deficits reversals that follow investment booms are marked by better growth performance than those following consumption booms. It also shows that many recent large current account deficits have been predominantly the result of consumption or non-productive investment booms.
Series: Working Paper No. 13/217
Subject(s): Current account deficits | Economic growth | Consumption | Public investment | Economic models

Publication Date: October 23, 2013
ISBN/ISSN: 9781484321898/1018-5941 Format: Paper
Stock No: WPIEA2013217 Pages: 23
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