Analysis of factors determining global payment imbalances in 2000-2019

Abstract

PURPOSE: The aim of the paper is to identify and assess the impact of the determinants of global payment imbalances in 2000-2019.

DESIGN/METHODOLOGY/APPROACH: The study used the desk research method, including critical analysis of the recent literature and econometric methods of data analysis. The assessment of the evolution of global payment imbalances was carried out using the index of global payment imbalances (GI), while regression analysis based on panel data was used to assess the impact of factors influencing payment imbalances.

FINDINGS: The research proves that the factors significantly influenced the current account balances (CAB) in the analyzed countries were, real effective exchange rate, GDP growth, household consumption and government consumption, investment, government budget balance, terms of trade, and crude oil trade balance.

PRACTICAL IMPLICATIONS: The conducted analyses allowed to formulate several recommendations for economic policy. China's exchange rate policy ceased to be the key factor generating global payment imbalances. Moreover, the change in China's economic model of reducing the role of external drivers of economic growth (export demand) and increasing the role of internal drivers (domestic demand) contributes to reducing China's external imbalances. Whereas, the sources of the U.S. current account deficit are particularly internal factors (domestic absorption). The government budget balance is one of the most important factors determining the CAB. Reducing government spending, can become an effective instrument to improve the current account balance. In addition, the balance of crude oil trade is a factor that has a large impact on the CAB. The energy transition of countries towards renewable sources can reduce global payment imbalances.

ORIGINALITY/VALUE: The results contribute to the discussion on the determinants of the global payment imbalances. In this approach, a comprehensive assessment for all countries and by group is possible.