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Do capital inflows cause current account deficits?

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  • Chul-Hwan Kim
  • Donggeun Kim

Abstract

This article examines the causal relationship between the Current Account (CA) and the Capital Account (KA) for Korea in a multivariate framework. The estimation results indicate the existence of bidirectional causality between the KA and the CA. The findings imply that an inflow of capital causes an appreciation of the Exchange Rate (ER), which in turn worsens the CA balance and may even trigger a currency crisis in the absence of adequately supervised banking systems and ER flexibility.

Suggested Citation

  • Chul-Hwan Kim & Donggeun Kim, 2011. "Do capital inflows cause current account deficits?," Applied Economics Letters, Taylor & Francis Journals, vol. 18(5), pages 497-500.
    • Handle: RePEc:taf:apeclt:v:18:y:2011:i:5:p:497-500
    DOI: 10.1080/13504851003724267
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    Cited by:

    1. Bonga-Bonga, Lumengo, 2017. "Fiscal policy, Monetary policy and External imbalances: Cross-country evidence from Africa’s three largest economies (Nigeria, South Africa and Egypt)," MPRA Paper 79490, University Library of Munich, Germany.
    2. Ashima Goyal & Vaishnavi Sharma, 2019. "Estimating the Relationship Between the Current Account, the Capital Account and Investment for India," Foreign Trade Review, , vol. 54(1), pages 29-45, February.
    3. Haitham Nobanee & Mohammed Haitham A. Salman & Jaya Anitha Abraham, 2021. "Current Assets Management, Remuneration, and Operating Cash Flow of UAE Construction Companies," International Journal of Financial Research, International Journal of Financial Research, Sciedu Press, vol. 12(3), pages 142-148, May.
    4. Oeking, Anne & Zwick, Lina, 2015. "On the relation between capital flows and the current account," Ruhr Economic Papers 565, RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen.
    5. Tanveer Ahmad Khan, 2022. "Current and Capital Account Dynamics in India: An Empirical Analysis of the Post-Reform Period," Foreign Trade Review, , vol. 57(1), pages 41-65, February.

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