Analyzing the Impact of Foreign Capital Inflows on the Current Account Balance in Developing Economies: A Panel Data Approach
This research has explored the effects of foreign capital inflows on the current account deficit in developing countries from 1995 to 2020. The study considers various factors such as import demand, export demand, foreign direct investment, foreign debt, economic growth, foreign remittances, and foreign reserves as independent variables. The analysis utilises the panel autoregressive distributed lag approach to examine both the long-run and short-run relationships between the dependent and independent variables. Moreover, the study employs the Panel Granger causality test to evaluate the causal connections among the selected variables. The results indicate that import demand, foreign debt, and remittance inflows positively affect the current account deficit in developing countries. Conversely, export demand, foreign direct investment, economic growth, and foreign reserves have a negative impact on the current account deficit. Consequently, it is recommended that developing countries prioritise the augmentation of stable and substantial foreign reserves as a strategy to alleviate the level of the current account deficit.
Copyright© 2023 The Author(s). This article is distributed under the terms of the license CC-BY 4.0., which permits any further distribution in any medium, provided the original work is properly cited.
Ali, A., Audi, M. (2023). Analyzing the Impact of Foreign Capital Inflows on the Current Account Balance in Developing Economies: A Panel Data Approach, Journal of Applied Economic Sciences, Volume XVIII, Summer, 2(80), 92–107. https://doi.org/10.57017/jaes.v18.2(80).04
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