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The Relationship between Current Account Deficits and Growth in Montenegro: ARDL Bounds Testing Approach

Author

Listed:
  • Mustafa Özer

    (Anadolu University, FEAS, Department of Economics, Eskişehir-Turkey)

  • Jovana Žugić

    (PhD Student, Belgrade Banking Academy, UNION, Belgrade, Serbia)

  • Sonja Tomaš-Miskin

    (PhD Student, Belgrade Banking Academy, UNION, Belgrade, Serbia)

Abstract

In this study, we investigate the relationship between current account deficits and growth in Montenegro by applying the bounds testing (ARDL) approach to co-integration for the period from the third quarter of 2011 to the last quarter of 2016. The bounds tests suggest that the variables of interest are bound together in the long run when growth is the dependent variable. The results also confirm a bidirectional long run and short run causal relationship between current account deficits and growth. The short run results mostly indicate a negative relationship between changes in the current account deficit GDP ratio and the GDP growth rate. This means that any increase of the value of independent variable (current account deficit GDP ratio) will result in decrease of the rate of GDP growth and vice versa. The long-run effect of the current account deficit to GDP ratio on GDP growth is positive. The constant (β0) is positive but also the (β1), meaning that with the increase of CAD GDP ratio of 1 measuring unit, the GDP growth rate would grow by 0,5459. This positive and tight correlation could be explained by overlapping structure of the constituents of CAD and the drivers of GDP growth (such as tourism, energy sector, agriculture etc.). The results offer new perspectives and insights for new policy aiming for sustainable economic growth of Montenegro.

Suggested Citation

  • Mustafa Özer & Jovana Žugić & Sonja Tomaš-Miskin, 2018. "The Relationship between Current Account Deficits and Growth in Montenegro: ARDL Bounds Testing Approach," Journal of Central Banking Theory and Practice, Central bank of Montenegro, vol. 7(3), pages 5-24.
    • Handle: RePEc:cbk:journl:v:7:y:2018:i:3:p:5-24
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    Citations

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    Cited by:

    1. Muhammad Ibrahim Shah, 2021. "Investigating the Role of Regional Economic Integration on Growth: Fresh Insights from South Asia," Global Journal of Emerging Market Economies, Emerging Markets Forum, vol. 13(1), pages 35-57, January.
    2. Nkosinathi Emmanuel Monamodi, 2024. "The Impact of Current Account Balance on Economic Growth in South Africa," Economies, MDPI, vol. 12(2), pages 1-16, February.
    3. Joel Hinaunye Eita & Victoria Manuel & Erwin Naimhwaka & Florette Nakusera, 2021. "The Impact of Fiscal Deficit on Inflation in Namibia," Journal of Central Banking Theory and Practice, Central bank of Montenegro, vol. 10(1), pages 141-164.

    More about this item

    Keywords

    Current account deficit; ARDL Bounds testing; Granger Causality; Co-integration; Montenegro Economy;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • E17 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Forecasting and Simulation: Models and Applications
    • E27 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Forecasting and Simulation: Models and Applications
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
    • H62 - Public Economics - - National Budget, Deficit, and Debt - - - Deficit; Surplus

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