As the current account equals the difference between domestic saving and investment
(i.e. the saving-investment balance), the current account developments are
examined from the perspective of the medium- to long-term determinants of saving
and investment behaviors (Faruqee and Isard, 1998; Chinn and Prasad, 2003). According
to these authors, the main determinants of the current account at medium
term are, inter alia, the demographic characteristics, such as, the dependency
ratios of dependent populations relative to the working age population or the population
growth, which is expected to exert a negative influence, with a higher
dependency ratio leading to more spending; the government budget balance, with
a public deficit having a negative effect on the current account, but this effect may
be regarded as a simple accounting one which has not to be introduced3.
The equations of current account are estimated with panel data over the period
1980-20034 and for two groups of countries. In a medium term perspective, we use