Empirical Investigation on the Determinants of Current Account Balances

current account balances, balance of trade, generalized method of moments, macroeconomic changes Abstract This paper conduct empirical analysis using the approach of Generalized Method of Moments to investigate the determinants of current account balances. The sample consists of 10 economies. The economies are categorized into two main groups, economies with current account deficits and economies with current account surpluses. Our main purpose of this study is to compare if the determinants on the current account balances in these two groups of economies are different. The determinants to be tested include exchange rate, consumer price index, the oil price of the world, interest rate, terms of trade, trade openness and reserve accumulation. The results show that these determinants have different impacts on current account adjustment across economies and current account balances. The factors that have important impact on current account in economies with current account deficits include CPI, world oil price, interest rate and exchange rate. On the other hand, the main determinants to the current account surpluses are CPI, trade openness and terms of trade. Other factors only show significant impact on current account balances in certain economies but not the others. 1.