The Sustainability of African Current Account Deficits: A Panel Cointegration Analysis

This study tests for the sustainability of current account deficits for a sample of twenty six African countries. For this purpose, a new test procedure advocated by Pedroni is employed which allows one to test for cointegration between exports and imports in heterogeneous panel datasets. This test uses more observations and exploits the cross-country variations of the data in estimation thereby yielding higher test power than alternative cointegration tests. An additional advantage associated with the Pedroni methodology is that we are able estimate the long-run relationships using fully modified and dynamic ordinary least squares and then test country-specific restrictions for long-run sustainability. Using annual data covering the period 1960-2000, this study finds strong evidence in favour of current account sustainability for eight African countries.