Current Account Deficit Sustainability in CEMAC: A Threshold Cointegration Approach

DIAKITE Ouei Karim¹ and DRAMA Bédi Guy Hervé^1,

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

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

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