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Is Malaysia's current account balance sustainable? Evidence from inter-temporal solvency model

Hassan, A.F.M.K. (2013) Is Malaysia's current account balance sustainable? Evidence from inter-temporal solvency model. International Journal of Business and Society, 14 (2). pp. 207-220.

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Sustainability of Malaysian current account balance is examined in the framework of international inter-temporal solvency model over the period from 1980:q1 to 2012:q2. The paper is significantly different from previous studies in this field in two ways. First, it uses the most recent quarterly data on current account balance. Second, this is the first study of its kind that uses Lee and Strazicich (2004) unit root test with structural break, which is fundamentally different from similar unit root tests (such as Zivot and Andrews, 1992 and Perron, 1997) in the formulation of null hypothesis with structural break. According to inter-temporal solvency model sustainable current account should exhibit mean-reversion property. Using various unit root tests, including Lee and Strazicich (2004) this paper finds that Malaysian current account does not satisfy the solvency condition and hence unsustainable. Further anatomy of data (by splitting the data into pre- and post-reversal sub-periods) indicates that the results do not exhibit any significant improvement over the whole sample. Data in both sub-periods exhibit nonstationary behavior. These results call for active policy agenda at macro level to get the current account balance at a sustainable level.

Item Type: Journal Article
Murdoch Affiliation(s): School of Management and Governance
Publisher: Faculty of Economics and Business, Universiti Malaysia Sarawak, Kota Samarahan, Sarawak, Malaysia
Copyright: The Author
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