Current Account and International Networks

This paper explores the impact of international financial and trade networks on current account balances in a large sample of developing and developed countries. The financial and trade inter-country networks centrality measures are computed based on the quantity and strength of the financial assets flows (for financial network) or export flows (for trade network) among the countries. I rely on a panel data and employ the fundamental characteristics of a country’s trading partners as instruments for the position of a given country in the international networks. I find that a more central position in the international trade or financial network improves the current account balance in developed and developing countries. Besides, the impact of international financial network on current account has become stronger over the past two decades and a better position in this network helped improve the current account balances during the Great Recession.