The Persistence and Determinants of Current Account Deficit of FYROM: An Empirical Analysis

This paper intends to analyze the empirical linkage between current account deficits and a wide range of macroeconomic indicators. Based on the recent econometric techniques we investigate the potential determinants of current account positions in FYROM for both, the short run and long run dynamics covering the period 1998q1-2013q4. By applying the ARDL approach, we estimate the regression equation and present the model with variables that best explain current account developments. Empirical results indicate that there is strong support for co integration relationship between current account, fiscal balance, financial development, terms of trade and trade openness. The financial development, fiscal balance and terms of trade are positively correlated with the current account balance, while openness to international trade is negatively correlated with the current account balance. Moreover, the inclusion of lagged current account as endogenous variable in the model indicates the current account deficits persistence.