External Balance in Low Income Countries
IMF Working Papers, October 1, 2009
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- External Balance in Low Income Countries
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Bibliographic details
- Authors: Lone Engbo Christiansen, Alessandro Prati, Luca A Ricci, Thierry Tressel
- Published: October 1, 2009
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781451873689.001
Summary
- Paper offers a coherent empirical analysis of the determinants of the real exchange rate, the current account, and the net foreign assets position in low income countries.
- Focuses on indicators specific to low income countries: the quality of policies and institutions, the special access to official external financing, and the role of shocks.
- Emphasizes both standard factors and low-income-country-specific factors in shaping external balances.
Key findings
- Domestic financial liberalization is associated with higher current account balances and net foreign asset positions.
- Capital account liberalization is associated with:
- lower current account balances,
- lower net foreign asset positions,
- more appreciated real exchange rates.
- Negative exogenous shocks tend to:
- raise the current account in countries with closed capital accounts,
- reduce the current account in countries with opened capital accounts.
- Foreign aid is progressively absorbed over time through net imports and is associated with a more depreciated real exchange rate in the long-run.
Subject matter and keywords
- Subject: Capital account liberalization, Current account, Foreign assets, Personal income, Real exchange rates
- Keywords: current account balance, emphasizing saving, fiscal policy, income effect, terms of trade goods, trade balance, WP