Current Account Deficits and Sustainability in Africa: Evidence from Cointegration Approach

Abstract This paper gives an overview of current accounts sustainability in forty African countries over the 1980–2016 period. The paper goes through by testing if this sustainability depends on regional blocs, income levels or exchange rate regimes. For this purpose, the paper employs a formal theoretical framework, recent cointegration techniques like threshold cointegration to test for long-run relationship between variables. Results reveal that although exports and imports plus interest payments on external debt are cointegrated in African economies, the current accounts are weakly sustainable in 45% of African economies and unsustainable in only 8%. Among regional blocs, income level and exchange rate regime groupings, only exchange rate regime groupings have a significant effect on current account sustainability. Since current account is strong sustainable in countries operating flexible and intermediate exchange rate regimes than countries operating fixed regimes.JEL Codes: F32, C23, C22