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Financial Liberalization and Current Account Developments in New EU Member States

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  • Zdenka Obuljen Zoričić Boris Cota Nataša Erjavec

    (University of Dubrovnik, Dubrovnik, Croatia. Faculty of Economics and Business, University of Zagreb, Zagreb, Croatia. Faculty of Economics and Business, University of Zagreb, Zagreb, Croatia.)

Abstract

Due to negotiations on accession to the EU, the new EU member states from Central and Eastern Europe went through the financial opening. In the pre-crisis period followed by high liquidity in global markets, most of the EU new member states experienced rapid credit growth, which conditioned the appreciation of the exchange rate. External imbalances and vulnerabilities built up. Countries experienced deterioration in their current accounts. This paper investigates the link between financial openness, real effective exchange rate, financial crisis and current account balance within the Panel Auto-Regressive Distributed Lag (ARDL) framework for 11 new European Union members during the period from 1999 to 2016. The results obtained by the use of pooled mean group estimator (PMG) show that in the long run, financial openness has a significant negative impact on the current account balance. In the short run, crisis significantly influences the current account balance having a positive sign. JEL Classification: C33, F32, F41

Suggested Citation

  • Zdenka Obuljen Zoričić Boris Cota Nataša Erjavec, 2020. "Financial Liberalization and Current Account Developments in New EU Member States," Zagreb International Review of Economics and Business, Faculty of Economics and Business, University of Zagreb, vol. 23(1), pages 141-154, May.
    • Handle: RePEc:zag:zirebs:v:23:y:2020:i:1:p:141-154
    DOI: 10.2478/zireb-2020-0009
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    References listed on IDEAS

    as
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    5. Claudio Borio & Piti Disyatat, 2015. "Capital flows and the current account: Taking financing (more) seriously," BIS Working Papers 525, Bank for International Settlements.
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    European Union; current account balance; financial openness; real effective exchange rate; pooled mean group estimator;
    All these keywords.

    JEL classification:

    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • 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

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