A Different Perspective for Current Account Deficit Issue on Some OECD Member Countries: A Binary Panel Logit Approach

Abstract

In this paper, we aim to analyze the possible factors, which could stimulate the probability of a financial crisis by testing the relationship between current account deficit and different macroeconomic variables by using panel logit model. For this purpose, we tried to investigate the impact of current account deficit on several macroeconomic variables such as real GDP, unemployment rate, consumer price index, rate of increase in exports, rate of increase in imports and public expenditures. In this context, we particularly selected the time period of 2005-2014 in order to concentrate on the pre-crisis and post-crisis period with the aim of investigating the potential relationship between the current account imbalances and financial crisis. To implement our objective, we examine the behaviors of macroeconomic variables in 16 developed and developing OECD member countries to analyze whether the crisis shares a common macroeconomic background. Our empirical results indicate that there is a significant positive relationship between the current account deficit and public expenditure. On the other hand, significant negative relationships have been obtained between consumer price index (CPI), unemployment rate, public expenditure and the current account deficit.