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Sustainability of current account balance in ASEAN countries: Evidence from a panel error correction model

Hassan, K., Hoque, A. and Rao, A. (2015) Sustainability of current account balance in ASEAN countries: Evidence from a panel error correction model. In: Australasian Conference on Business and Social Sciences, 13 - 14 April, Sydney, Australia

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Abstract

This paper employs a panel based error correction approach to examine the short-and long-run dynamics of the current account sustainability in four ASEAN countries (Indonesia, Malaysia, the Philippines, and Thailand) over the period 1970 - 2010. The empirical findings indicate that exports and imports in these countries are cointegrated. The short-run deviation of this cointegrating relationship is significant and takes slightly less than four years to return to the long-run equilibrium path. This finding reinforces the notion that the current account balance is the outcome of optimal decisions of the lenders and borrowers, and any intervention to correct it is unwarranted. This finding also provides evidence against the claim that the Asian financial crisis was the outcome of an unsustainable current account deficit.

Publication Type: Conference Paper
Murdoch Affiliation: School of Management and Governance
URI: http://researchrepository.murdoch.edu.au/id/eprint/39280
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