The benefits and risks of financial globalisation: evidence from the European transition economies
The benefits and risks of financial globalisation: evidence from the European transition economies

Summary/Abstract: This study investigates whether the sizable and persistent current account deficits of European transition economies have been fuelling higher rates of economic growth during the last fifteen years. It employs a Barro-type growth model that encompasses a core set of growth determinants and control variables in order to examine whether episodes of current account reversals and sudden stops in international capital inflows have had detrimental effects on economic growth. The empirical specification uses data for 27 advanced economies and 13 European transition economies. Large and persistent current account deficits have been associated with gains from inter-temporal trade and, therefore, have served as an engine of economic growth. The evidence seems to support the proposition that current account deficits in transition economies have, on average, generated moderate growth-conducive effects. The empirical work also produces limited evidence that current account reversals and sudden stops of net capital inflows have been associated with growth slowdown.

• Details
• Contents