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Olivier Habimana, Jamel Dugbeh and Jacqueline Muhawenayo
''Are African current accounts on a sustainable path? A tale of two components''
( 2020, Vol. 40 No.3 )
This paper investigates the sustainability of current account imbalances in a sample of 45 African countries for the period 1980-2019. To do so, we apply Reese and Westerlund's PANICCA test (PANICCA: Panic on Cross‐Section Averages. Journal of Applied Econometrics 2016; 31(6), 961-981) that disentangles common and idiosyncratic components of current account. This approach allows us to investigate whether current account sustainability or lack thereof is pervasive on the African continent, country specific or both. Key to our findings is that overall, current accounts of African countries are on a sustainable path. This sustainability is mainly driven by the common component and 70% of country-specific components.
Keywords: Africa, current account sustainability, intertemporal budget constraint, PANICCA, unit root test
JEL: F3 - International Finance: General
F4 - Macroeconomic Aspects of International Trade and Finance: General
Manuscript Received : May 01 2020 Manuscript Accepted : Jul 14 2020

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