Financial markets and the current account: emerging Europe versus emerging Asia

Sabine Herrmann and Adalbert Winkler

No 2008,05, Discussion Paper Series 1: Economic Studies from Deutsche Bundesbank

Abstract: Financial globalisation has been associated with divergent current account patterns in emerging market economies. While countries in emerging Asia have been running sizeable current account surpluses, countries in emerging Europe have been facing large current account deficits. In this paper we test for the relevance of financial market characteristics in explaining divergent current account patterns in emerging Europe and emerging Asia based on the assumption that both regions constitute two different convergence clubs with the euro area and the US representing the core, respectively. In line with the theoretical literature, we find that better developed and more integrated financial markets increase emerging markets´ ability to borrow abroad. The degree of financial integration within the convergence clubs as well as the extent of reserve accumulation are found to be the most significant factors to explain divergent current account patterns in emerging Europe and emerging Asia. We conclude that the overall character of integration matters for the pattern of current account developments in catching-up economies.

Keywords: real convergence; economic integration; saving and investment; current account developments; financial markets; emerging market economies (search for similar items in EconPapers)
JEL-codes: F15 F21 O16 O52 O53 (search for similar items in EconPapers)
Date: 2008
New Economics Papers: this item is included in nep-cba, nep-eec, nep-fdg, nep-ifn, nep-mac, nep-opm and nep-sea
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Citations: View citations in EconPapers (13)

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Journal Article: Financial markets and the current account: emerging Europe versus emerging Asia (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:bubdp1:7116

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