This study aims to analyze the determinants of the current account deficits for a broad samples of industrial and developing countries for the period 1984-2001. Using a dynamic panel data estimation procedure, we try to unfold the impact of several macro economic and institutional variables on current account deficits. In this context, we also examine the validity of Feldstein Horioka puzzle and its relevance to the current account imbalances. Results show that better governance, a more sophisticated financial system, relatively larger country size and deterioration in the terms of trade are associated with higher current account deficits. On the other hand, exchange rate regime flexibility, openness to foreign trade and depreciation of the real exchange rate lead to smaller current account deficits. We also find that the saving investment relationship is still considerably high both in the short run and in the long run.

xiii, 160 p. : ill. A print copy of this thesis is available through the UO Libraries. Search the library catalog for the location and call number. / Feldstein and Horioka (1980) motivated the international finance literature by claiming a least squares regression of domestic investment rates on domestic savings rates is an informative measure of capital mobility. Their method stirred up controversy when they interpreted a high correlation between savings and investment rates as evidence of capital immobility, creating the famous Feldstein-Horioka puzzle. Current research starts with the Feldstein-Horioka result and shifts focus toward measuring short and long-run adjustments to external imbalances. The literature has implemented dynamic time-series and panel estimators to test the relationship. Following recent literature, each chapter in this dissertation jointly focuses on the adjustment process of current account imbalances and the conditions required for capital mobility. The intent of this study is to show through the use of new estimation techniques previous results have been largely misguided. The starting point for this analysis is a thorough review of three key equations used in saving-investment regressions. The three models in question are an ordinary least squares model, error correction model, and an autoregressive distributive lag estimator. Each model is tested for stability, and it is found that a number of countries have an unstable relationship. One argument for the instability results is the presence of structural breaks. Previous literature has found that both variables follow non-stationary processes, but when using more powerful unit root tests and controlling for level shifts, both variables appear stationary. If each variable is stationary then previous methods assuming non-stationarity will produce incorrect inferences. Each series is optimally estimated for structural breaks, and through a mean differencing process the savings-investment coefficient is significantly reduced. Additionally, removing the exogenous breaks and using the lower frequency components allows for modeling the short-run current account adjustment process. Finally, the results are extended to measure the relationship in a panel framework using dynamic panel estimators and threshold effects. After controlling for structural breaks the coefficient decreases and exhibits a downward trend. The remaining correlation can be explained through trade openness and country size measures. / Committee: Nicolas Magud, Chairperson, Economics; Stephen Haynes, Member, Economics; Jeremy Piger, Member, Economics; Regina Baker, Outside Member, Political Science

La montée du poids de la finance est, pour une part au moins, une réponse à la mise en place et en œuvre de stocks de capital productif toujours plus importants et à l’accumulation, qui en est la contrepartie, d’une masse toujours plus grande d’actifs financiers. A ce premier facteur qui fait de la montée du poids de la finance une conséquence en partie « mécanique » du développement économique, s’en est toutefois ajouté un autre : une montée incontestable du rôle des marchés financiers qui est venue modifier en profondeur la façon dont les risques liés au financement de cette accumulation de capital productif sont désormais portés. Le mécanisme d’allocation de l’épargne et de prise de risques mis à disposition de nos économies par les marchés financiers n’a toutefois ni la puissance ni la robustesse que lui prêtent les tenants de la libéralisation financière. La masse de risques qu’un système financier peut porter est fonction des contraintes de prudence imposées par les régulateurs, mais aussi de l’attitude face au risque des acteurs financiers. Le caractère cyclique de cette dernière a une incidence majeure sur la stabilité financière : le système peut brutalement ne plus parvenir à trouver seul son équilibre. / The rise of finance in developed economies is, for a part at least, a response to the provision and use of an ever growing volume of productive capital stocks and to the accumulation of an ever growing amount of financial assets, which is its counterpart. It is, however, far from being only a mechanical consequence of the development of the real sphere of the economy: the development of financial markets has also radically altered the way financial risks associated with the financing of the accumulation of capital stocks are now borne. The mechanisms allocating savings and redistributing financial risks at the disposal of our economies have, however, neither the efficiency nor the robustness advocated by the proponents of financial liberalization. The mass of risks a financial system can absorb depends not only on prudential regulatory constraints, but also on financial agents’ attitude towards risk. The pro-cyclical nature of the latter has a major impact on financial stability: the system can suddenly be unable to strike a balance on its own.

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