Stages of development hypothesis in a globalised world

The chapter tests the stages of development hypothesis for the balance of payments (SDH) in the years 1992-2016. We use data for 80 economies that are divided into five income groups. The research method includes regression. Our study yields yet limited support for SDH. The curve representing the relationship between current account and income per capita is not typically U-shaped as presumed by SDH. The association seems linear and positive. Developing countries whose income per capita is closer to that of industrialised economies tend to run lower current account deficits. The richer a developed economy the higher its current account surplus. However, the relationship is not confirmed in a dynamic setting of panel data, which indicates a high degree of persistence in the current account in individual countries. The findings of the study prove that low-income countries are able to overcome the liquidity constraint and attract foreign capital at an early stage of their life cycle.