The Relationship between the Current Account Balance and Growth Rates for Large Economies

Abstract

The author of the article using the example of large economies showed the possibilities of a quantitative analysis of the relationship between the current account balance and the economic growth rates  in 1980-2015. The group of the large economies includes  those countries whose GDP exceeded 1 percent of the global GDP for at least one year of the period under study. There appear to be 24  countries that meet this criterion. The analysis of the dynamics of  the current account balance (CAB) of these countries revealed a  significant CAB sign stickiness. That said, out of the 14 countries  that make up the so-called permanent group within the large  economies, four - Australia, Brazil, India and the USA - have had a  CAB deficit during the period under study, and four countries -  China, the Netherlands, Switzerland and Japan - had a CAB surplus. The article reviews possible correlations between the growth  rates and the current account balance (percent of GDP) for  the large economies. It is shown that for only a few of those 24  countries there was a stable (with reliability at 80 percent or more)  correlation: for some it was positive, for others - negative. Only  three out of 24 countries (China, Russia and Turkey) showed a stable correlation with reliability at 0.95: China and Russia - positive  correlation; Turkey - negative correlation. The rapid growth of the  Indian economy does not have a significant correlation with the CAB value. The paper analyzes the scatter diagram for CAB values  (percent of GDP) and GDP growth rates at constant prices averaged  out for the entire observation period for all the 24 countries.  Calculations demonstrate that it is possible for large economies to  secure relatively high rates of economic growth for many years even with a CAB deficit.