Global Imbalances and Capital Account Openness: an Empirical Analysis

We investigate if capital account openness has played a major role in the evolution of global imbalances on the period 1980-2003. We estimate, with panel regression techniques, the impact of capital account openness on medium-term current account imbalances for industrialized and emerging countries by using a de jure measure of capital account openness (the KAOPEN index (Chinn and Ito, 2002, 2006) and a de facto measure of capital account openness (the gross foreign assets measured as the sum of foreign assets and foreign liabilities). By increasing the opportunities of overseas investments, the relative capital account openness has had a positive impact on medium-term current account balances of industrialized countries (because of downward pressures on domestic investment rates). Conversely, the relative capital account openness has had a negative impact on medium-term current account balances of emerging countries (because of upward pressures on domestic investment rates). Nowadays, current account imbalances are larger in reason of higher capital mobility. Nevertheless, a large part of imbalances may be considered as unrelated with the evolution of macroeconomic fundamentals.