Macroeconomic Variables and Current Account Balance in an Open Economy: Evidence from Namibia

Abstract

This paper investigates macroeconomic determinants of the current account balance in Namibia. The results show that there is evidence of twin deficit hypothesis in Namibia. Evidence of twin deficit hypothesis suggest that it is important for Namibia to have fiscal discipline in order to improve its current account. Increase in capital flows, real GDP or per capita, results in a deterioration of the current account. Increase in interest rate, commodity prices and population cause the current account balance to improve. This suggest that contractionary monetary policy contributed to reduction of unproductive imports and improved the current account balance.

Notes

1 This condition holds that the depreciation of a currency improves the current account of the balance of payments, if the sum of price elasticities of demand for export and imports is greater than one.