Current Account in Western Balkan Countries
Keywords:current account balance, trade balance, foreign direct investment, remittances
The main purpose of this paper is to analyze the structure and level of current account deficit and the ratio between the current account deficit and its determinants in the Western Balkan countries. The methodology is based on the econometric model that enables the testing of the impact of each independent variable on the dependent variable. Once the stationarity and cointegration between the variables was verified, the FMOLS and DOLS equation was used to show the relation between the variables. The econometric model consists of independent variables (trade balance, foreign direct investment, remittances), while the dependent variable is the current account balance. The econometric model has enabled the estimation of the significance and direction of movement of each of the independent variables to the dependent variable. Findings have shown that the trade balance deficit is the main determinant of the current account deficit in the Western Balkans confirming the first hypothesis of the paper, while foreign direct investment and remittances are the means of financing this deficit confirming the second hypothesis of the paper. This paper may be of interest to developing macroeconomic policies in order to direct efforts to reduce current account deficits by making reforms to structural changes in current account deficits, because the problems of this deficit stem from the structure of current account.
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