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Research Article

Financial Development and Current Account Imbalance: Evidence from Dynamic Panel Data Model with Gmm Estimation

Pan Ya-Qiong and Zhang Rui
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This study discusses current account imbalance and its influence factors, especially studies effect of financial development level and financial openness on current account. Adopting Generalized Method of Moment (GMM) estimation method and using annual data of 59 countries or regions from 1986-2010, dynamic panel regression model is established to research empirically. The findings are showed as follows: (1) There is a significant relationship between current account imbalance and financial deepening, market efficiency of developed countries and developing countries, (2) Developed countries should increase budget surplus, raise labor productivity, expand trade openness, improve the efficiency of financial market, lessen consumer demand and investment and reduce financial deepening to increase their current account surplus or reduce deficit, (3) Developing countries should increase net foreign assets, expand trade openness, improve terms of trade, enhance the efficiency of financial market to improve their current account. While increase per capita income, stimulate consumer demand and investment, appreciate currency, expand financial deepening will cut down excess of current account surplus, (4) Real effective exchange rates will not impact on current account of developed countries significantly, which means appreciation or depreciation of currency cannot change the imbalance of current account.

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  How to cite this article:

Pan Ya-Qiong and Zhang Rui , 2013. Financial Development and Current Account Imbalance: Evidence from Dynamic Panel Data Model with Gmm Estimation. Journal of Applied Sciences, 13: 2933-2939.

DOI: 10.3923/jas.2013.2933.2939


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