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Global Imbalances: The Role of Institutions, Financial Development and FDI in the Context of Financial Crises

Author

Listed:
  • Carlos A. Silva

    (Department of Economics and Related Studies, University of York, York YO10 5DD, UK
    Trade Data Lab, Guayaquil 090112, Ecuador)

  • Xavier Ordeñana

    (ESPAE Escuela de Negocios de la ESPOL, Malecón 100 y Loja, Guayaquil 090313, Ecuador)

  • Paul Vera-Gilces

    (ESPAE Escuela de Negocios de la ESPOL, Malecón 100 y Loja, Guayaquil 090313, Ecuador)

  • Alfredo Jiménez

    (Department of Management, KEDGE Business School, 33405 Bordeaux, France)

Abstract

This paper examines the role of the quality of institutions, financial development and FDI on current account imbalances, which narrowed during the Global Financial Crisis. In doing so, we utilize ( i ) a sample of 49 advanced and emerging economies during 1984–2014; ( ii ) a novel three-clustered indices of institutional quality and ( iii ) two measures of financial development, the share of FDI and a measure of financial crisis in addition to standard determinants of the current account. We find that the better the quality of institutions and the greater the financial development, the larger are current account deficits; meanwhile, FDI contributes to boost current account balances. Moreover, financial crisis episodes tend to improve current account balances, particularly for countries that are highly open to trade and to receive FDI, as in the case of advanced economies and East Asian countries.

Suggested Citation

  • Carlos A. Silva & Xavier Ordeñana & Paul Vera-Gilces & Alfredo Jiménez, 2021. "Global Imbalances: The Role of Institutions, Financial Development and FDI in the Context of Financial Crises," Sustainability, MDPI, vol. 13(1), pages 1-20, January.
    • Handle: RePEc:gam:jsusta:v:13:y:2021:i:1:p:356-:d:473963
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    References listed on IDEAS

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    2. Alfredo Jimenez & Jeoung Yul Lee & Xavier Ordeñana, 2021. "Introduction: FDI and Institutional Quality: New Insights and Future Perspectives from Emerging and Advanced Economies," Sustainability, MDPI, vol. 13(8), pages 1-4, April.
    3. Katarzyna Twarowska-Mol & Małgorzata Twarowska-Ratajczak, 2021. "Analysis of Factors Determining Global Payment Imbalances in 2000-2019," European Research Studies Journal, European Research Studies Journal, vol. 0(4B), pages 455-478.

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