Current Account Imbalances and Indebtedness in Asia Countries

XIN LIN, SOO (2023) Current Account Imbalances and Indebtedness in Asia Countries. PhD thesis, Universiti Malaysia Sarawak.

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Abstract

The primary focus of international economics is external imbalances which act as a powerful impetus for historical changes in the economy. This study's objectives are to analyse the determinants of current account imbalance as well as to examine the relationship between current account balance and indebtedness. This study is on 48 Asia countries and spans a sampling period from 1990 to 2020. The fiscal balance, public debt, household debt, age dependency ratios for old and young, information and communications technology (ICT), real GDP, and real effective exchange rate are independent variables while the current account balance is a dependent variable. The primary methodologies are dynamic GMM panel estimation and panel threshold splitting model estimation. The empirical result indicates that the determinants of current account imbalance are the fiscal balance, public debt, age dependency ratio for old, and real GDP. However, the age dependency ratio for young, ICT, and real effective exchange rate are insignificant to the current account balance. Besides, debt levels have a positive and strong association with both the fiscal balance and current account balance. Next, the current account balance and the fiscal balance have a positive and significant association under both regimes when the threshold level of public debt-to-GDP is at 62.72%. Besides, the threshold level of household debt-to-GDP is achieved at 52.22%. Yet, both balances perform a negative relationship which is a twin divergence situation below the household debt threshold level and demonstrates positive significant nexus above the household debt threshold level. In the policy recommendation, fiscal consolidation is proposed for the Asia countries. The application of fiscal rule can help to slow down deficit phenomenon and act as a stabilization mechanism in moderating the current account position of Asia countries. Moreover, the managing of the optimal debt threshold position of a country by policymakers is also crucial to overcome the economic uncertainties for sustaining economic growth in the Asia region.

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