Determinantes de la Cuenta Corriente en Costa Rica[Determinants of the Costarican Current Account]

This paper develops variants of the model suggested by Glick and Rogoff (1996) and VAR models to analyze short term effects of the main determinants for the current account in Costa Rica. Empirical evidence suggests that, lagged investment, government’s primary surplus, terms of trade, international interest rates, and the real exchange rate, have significant impact on the evolution of the current account. Changes in the terms of trade have a moderate effect on the current account. Terms of trade affect the current account by two channels, the quantum and the value of the exports and imports. The estimated net effect suggests that a decline on the terms of trade produces a worsening in the current account deficit. Government income and expenses have influence on the current account in such a way that increases in the government’s surplus net of interest payments will reduce the current account deficit. In addition, international interest rates and real exchange rate variations have a significantly positive effect on the current account. Finally, no significant effect of US growth on current account deficit can be identified.