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Sustainability of The Current Account In Bangladesh: An Intertemporal and Cointegration Analysis

2014; Western Illinois University; Volume: 49; Issue: 1 Linguagem: Inglês

10.1353/jda.2015.0019

1548-2278

Abdul Wadud, Sajjadur Rahman, Mohd. Mozammel Hossain Chowdhury,

Fiscal Policies and Political Economy

This paper aims to assess the sustainability of the current account of Bangladesh over the period of 1982–2012 using the intertemporal solvency model of Hakkio and Rush (1991) and Husted (1992). This approach examines the relationship between exports and imports plus unilateral transfer payments. We apply Johansen cointegration test and Dynamic Ordinary Least Square (DOLS) to evaluate the sustainability. Cointegration between inflows and outflows of current account implies that the intertemporal budget constraint is satisfied. Results of the Johansen cointegration test imply that there is a cointegrating relationship between exports and imports plus unilateral transfer payments. This indicates that Bangladesh’s current account is sustainable but result of DOLS estimation reveals that it is weakly sustainable.