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The Sustainability of India's current account (1950-2003): Evidence from parametric and non-parametric unit root and cointegration tests

Author

Listed:
  • Mark J. Holmes

    (Waikato University, New Zealand)

  • Theodore Panagiotidis

    (University of Macedonia, Greece and The Rimini Centre for Economics Analysis, Italy)

  • Abhijit Sharma

    (Bradford University, UK)

Abstract

This study conducts an investigation into the sustainability of the Indian current account over the study period 1950-2003. It is argued that a necessary condition for current account sustainability is that exports and imports are cointegrated. After testing for unit roots that allow for a structural break, we employ parametric tests for cointegration: based on Johansen (1995) and Saikonnen and LŸtkepohl (2000) as well as the nonparametric procedure proposed by Breitung (2002) and Breitung and Taylor (2003) that does not assume linearity. By employing these procedures recursively, two distinct regimes are identified characterised by whether or not imports and exports are cointegrated. The regime of non-cointegration runs until the late 1990s and the second regime of cointegration is present after that. This latter regime coincides with the liberalisation of the Indian economy.

Suggested Citation

  • Mark J. Holmes & Theodore Panagiotidis & Abhijit Sharma, 2007. "The Sustainability of India's current account (1950-2003): Evidence from parametric and non-parametric unit root and cointegration tests," Working Paper series 41_07, Rimini Centre for Economic Analysis.
    • Handle: RePEc:rim:rimwps:41_07
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    References listed on IDEAS

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    More about this item

    Keywords

    India; current account; sustainability; cointegration; nonparametric cointegration; rolling and recursive p-values data;
    All these keywords.

    JEL classification:

    • C5 - Mathematical and Quantitative Methods - - Econometric Modeling
    • F1 - International Economics - - Trade
    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance

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