Abstract
This paper empirically investigates the impact of Net Foreign Assets-NFA, Trade Openness-OPEN, Nominal
Exchange Rate-NER, and Domestic Relative Income-DRI on selected South-Asian countries for the time period of
thirty-two years from 1984-2015. Co-integration technique is used to identify the long-run effect of macroeconomic
variables on current account balances. Johansen and Juselius (1990) Co-integration technique has been used to identify
the existence of a long-run relationship between current account and expected explanatory variables within the VAR
model. Whereas, for the identification of the short-run effect of the explanatory variables on the current account, the
Vector Error Correction Model (VECM) has been employed. The results indicate that NFA, OPEN, and DRI are
important factors in explaining the long-run behavior of the current account than the NER. The results also prove that
NFA, OPEN, and DRI are more pertinent than the NER, in explaining movements in the current account on a long
term basis in the context of the sampled countries. The study implies that the current account balance is one of the
economic indicators that strengthens the relationship between the macro-economic variables and the current account
respectively.
Fareeha Riaz, Attiya Yasmin Javid, Fauzia Mubarik. (2019) Macroeconomic Determinants of Current Account in South-Asian Countries, Paradigms , Vol 13, Issue 1.
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