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Business & Economics

Are Current Account Deficits in Eastern Europe and Former Soviet Union too High?
Aleksander Aristovnik

ABSTRACT. The article investigates the main factors of current account deficits in order to assess the potential excessiveness of current account deficits in selected countries of Eastern Europe and the former Soviet Union. According to a simulated benchmark calculated on the basis of selected determinants, the results confirm that the actual current account balances are generally close to their estimated levels in the 2000-2003 period in the transition region. This notion is in line with the intertemporal approach to the current account balance, suggesting that higher external deficits are a natural outcome when permanent domestic output exceeds current output and when current investments and government consumption exceed their permanent levels. Hence, the results suggest that most countries in Eastern Europe and the former Soviet Union are justified in running relatively high current account deficits.

KEYWORDS: current account deficit, excessiveness, determinants, dynamic panel data, transition countries.

JEL classification: C33, F32.