Journal of Finance and Economics
ISSN (Print): 2328-7284 ISSN (Online): 2328-7276 Website: http://www.sciepub.com/journal/jfe Editor-in-chief: Suman Banerjee
Open Access
Journal Browser
Go
Journal of Finance and Economics. 2017, 5(4), 171-178
DOI: 10.12691/jfe-5-4-3
Open AccessArticle

Current Account Deficit Sustainability in CEMAC: A Threshold Cointegration Approach

DIAKITE Ouei Karim1 and DRAMA Bédi Guy Hervé1,

1Department of Economics, University Peleforo Gon Coulibaly of Korhogo, Côte d’Ivoire

Pub. Date: July 24, 2017

Cite this paper:
DIAKITE Ouei Karim and DRAMA Bédi Guy Hervé. Current Account Deficit Sustainability in CEMAC: A Threshold Cointegration Approach. Journal of Finance and Economics. 2017; 5(4):171-178. doi: 10.12691/jfe-5-4-3

Abstract

Whether or not a current account deficit is sustainable has important implications for policy. If the current account deficit of a nation is sustainable, then it implies that the government should have no incentive to default on its international debt. In this article, we examine whether or not the current account deficits of the Economic and Monetary Community of Central African countries are sustainable. The econometric methodology adopted threshold cointegration test advanced by Enders and Siklos [7]. The findings indicate that: (1) the current account deficits are only strong sustainable for Chad and weakly sustainable for Central Africa Republic, Congo and Gabon; (2) the results from panel cointegration test showed that current account deficits are weakly sustainable in CEMAC area; (3) Cameroon and Equatorial Guinea are in violation of their international budget constraints and should therefore put in place policies to reduce their current account deficits in order to regain their external stability; and (4) For the other country members of CEMAC where sustainability was found to be weak, they should also implement policies to reinforce the sustainability of the current account deficits.

Keywords:
current account sustainability CEMAC threshold cointegration

Creative CommonsThis work is licensed under a Creative Commons Attribution 4.0 International License. To view a copy of this license, visit http://creativecommons.org/licenses/by/4.0/

References:

[1]  Arcade, N. and L.A. Esther (2014). “Are current Account deficit sustainable in EAC ountries? Evidence from Threshold cointegration” Economics Bulletin 34, 1990-2001.
 
[2]  Balke, N.S. and T.B. Fomby (1997). “Threshold Cointegration” International Economic Review 38, 627-645
 
[3]  Chan, K.S. (1993). “Consistency and Limiting Distribution of the Least Squares Estimator of a Threshold Autoregressive Model” The Annals of Statistics 21, 520-533.
 
[4]  Dickey, D. A. and Fuller, W. A. (1981). “Likelihood ratio statistics for autoregressive time-series with a unit root”, Econometrica, 49, 1057-1072.
 
[5]  Dumitrescu, E. and C. Hurlin (2012). “Testing for Granger non-causality in heterogeneous panels” Economic Modelling 29, 1450-1460.
 
[6]  Enders, W. and C.W.F. Granger (1998). “Unit-Root Tests and Asymmetric Adjustment with an Example Using the Term Structure of Interest Rates” Journal of Business & Economic Statistics 16, 304-311.
 
[7]  Enders, W. and P.L. Siklos (2001). “Cointegration and Threshold Adjustment”, Journal of Business and Statistics 19, 166-176.
 
[8]  Engle, R.F. and C.W.J. Granger (1987). “Co-integration and Error Correction: Representation, Estimation, and Testing” Econometrica 55, 251-276.
 
[9]  Hakkio, C.S. and M. Rush (1991). “Is The Budget Deficit 'Too Large?” Economic Inquiry 29, 429-445.
 
[10]  Herzer, Dierk and Nowak-Lehmann D., Felicitas (2005). “Are exports and imports of Chile cointegrated?” Ibero America Institute for Economic Research, Discussion papers number 111.
 
[11]  Husted, S. (1992). “The Emerging U.S. Current Account Deficit in the 1980s: A Cointegration Analysis” Review of Economics and Statistics 74, 159-166
 
[12]  Im, K.S., Pesaran, H.M. and Y. Shin (2003). “Testing for Unit Roots in Heterogeneous Panels" Journal of Econometrics 115, 53-74.
 
[13]  Johansen, S. and K. Juselius (1990). “Maximum Likelihood Estimation and Inference on Cointegration with Applications to Demand for Money” Oxford Bulletin of Economics and Statistics 52, 169-210.
 
[14]  Milesi-Ferretti, G.M., Razin, A. (1996). “Sustainability of Persistent Current Account Deficits”, NBER Working Paper, No. 5467.
 
[15]  Mukhtar, T. and S. Rasheed (2010). “Testing Long Run Relationship between Exports and Imports: Evidence from Pakistan” Journal of Economic Cooperation and Development 31, 41- 58.
 
[16]  Narayan, P.K. and S. Narayan (2005). “Are Exports and Imports Cointegrated? Evidence from 22 Least Developed Countries” Applied Economics Letters 12, 375-378.
 
[17]  Pesaran, M.H. (2007). “A Simple Panel Unit Root Test in the Presence of Cross-Section Dependence” Journal of Applied Econometrics 22, 265-312.
 
[18]  Pedroni, P. (1999). “Critical Values for Cointegration Tests in Heterogeneous Panels with Multiple Regressors” Oxford Bulletin of Economics and Statistics 61, 653-670.
 
[19]  Pedroni, P. (2004). “Panel Cointegration: Asymptotic and Finite Sample Properties of Pooled Time Series Tests with an Application to the PPP Hypothesis” Econometric Theory 20, 597-625.
 
[20]  Rahman, M.Z. (2011). “Existence of Export-Import Cointegration: A Study on Indonesia and Malaysia” International Business Research 4, p.108
 
[21]  Roubini, N., Wachtel, Paul (1999). “Current-Account Sustainability in Transition Economies” IN: Balance of Payments, Exchange Rates, and Competitiveness in Transition Economies, Kluwer Academic Publishers, pp. 19-93
 
[22]  Serdar, O. (2008). “The Sustainability of Current Account Deficits and Tourism Receipts in Turkey” The International Trade Journal 22, 39-62.
 
[23]  Stigler, M. (2012). “Threshold Cointegration: Overview and Implementation in R”, Vignette (tsDyn), R package version 0.8-1, Revision 4.
 
[24]  Sun, C. (2011). “Price Dynamics in the Import Wooden Bed Market of the United States” Forest Policy and Economics 13, 479-487
 
[25]  Tiwari, A.K. (2012). “Reassessment of Sustainability of Current Account Deficit in India” South-Eastern Europe Journal of Economics 1, 67-79
 
[26]  Yol, M.A. (2009). “Testing the Sustainability of Current Account Deficits in Developing Economies: Evidence from Egypt, Morocco and Tunisia” The Journal of Developing Areas 43, 177-197.