Discussion Paper

No. 2012-24 | May 02, 2012
Are Current Account Deficits Sustainable? New Evidence from Iran Using Bounds Test Approach to Level Relationship

Abstract

This paper provides new evidence on the long-run relationship between exports and imports of the Iranian economy by employing bounds test approach to level relationship. In Iran, there have been many unusual policy changes and/or external shocks to the economy which resulted in the occurrence of multitude of structural breaks in macroeconomic variables. By taking these breaks into account, the results of the present study reveal that there is long run equilibrium relationship between imports and exports over the sample period, 1960–2007. This result confirms the finding of Arize (Imports and Exports in 50 Countries: Tests of Cointegration and Structural Breaks, 2002) by employing bounds tests to level relationship and suggests that current account deficits in Iran are sustainable.

JEL Classification

C22 F10 F32

Cite As

Hassan Heidari, Salih Turan Katircioglu, and Narmin Davoudi (2012). Are Current Account Deficits Sustainable? New Evidence from Iran Using Bounds Test Approach to Level Relationship. Economics Discussion Papers, No 2012-24, Kiel Institute for the World Economy. http://www.economics-ejournal.org/economics/discussionpapers/2012-24

Assessment



Comments and Questions


Anonymous - Referee Report 1
May 02, 2012 - 12:18

see attached file


Anonymous - Referee Report 2
May 29, 2012 - 09:46

see attached file


Hassan Heidari - Reply to referee report
June 12, 2012 - 08:56

see attached file


Hassan Heidari - Revised version
June 12, 2012 - 08:57

see attached file


Anonymous - Final Decision
August 30, 2012 - 10:19

The paper investigates current account sustainability using Iranian data and a “Bounds Test Approach”. The theoretical model is obviously quite standard in the literature as well as the econometric approach. The author’s responded carefully to the comments raised by the referees. Especially the research question is better clarified in the ...[more]

... second version and the data as well as the procedure is much better explained. The paper adds tesserae to the evidence in this field. This makes it worthwhile to be considered for publication.


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