Current Account convergence in the Western Balkans. (14th February 2012)

• Record Type: Journal Article
• Authors: Hlivnjak, Sandra; Adnett, Nick
• Is Part Of: International journal of economic policy in emerging economies. Volume 5:Number 1(2012)
• Page Start: 82
• Page End: 103
• Publication Date: 2012-02-14
• Subjects: current account deficits -- sustainability -- mean reversion; Russia (Federation) -- Economic policy -- 1991- -- Periodicals; Former Soviet republics -- Economic policy -- 1991- -- Periodicals; China -- Economic policy -- 1991- -- Periodicals; 338.947
• Languages: English
• ISSNs: 1752-0452

Abstract

The Maastricht criteria with their focus on nominal and macroeconomic convergence are important conditions that Western Balkan (WB) countries have to comply with. A significant threat to convergence of these countries is their large and persistent Current Account (CA) deficits. In this paper, an assessment of CA sustainability in this region is conducted by refining the concept of a sustainable CA deficit through application of a stationary condition and mean reversion proposition. A stationary CA to Gross Domestic Product ratio is argued to be consistent with a finite external debt to GDP ratio. The rate of convergence of the CA rate to its steady state is estimated for each of the WB countries. We find that four of the five WB countries have met the minimum requirement for CA sustainability.