CURRENT AND CAPITAL ACCOUNT INTERDEPENDENCE: AN EMPIRICAL TEST
Tuck Cheong Tang
This study uses two alternative specifications to test the interdependence between the current and capital accounts of the balance of payments. The empirical specifications, derived from the balance of payments constraint and from national income accounting relationships, respectively, yield consistent support for the interdependence hypothesis. The balance of payments specification returns positive findings for nine of the ten sample countries. These are corroborated by the general equilibrium specification in three instances. Neglect of the comprehensive lag structure of the underlying model may account for the relatively weak support from the general equilibrium specification of the interdependence hypothesis.
Current account; Capital account; Developing countries; G-5; Interdependence
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