External debt and current account adjustments: The role of trade openness

Figures & data

Figure 1. External Debt and Openness (1985–2013).

Note: Countries in this plot are the 30 SSA countries for which data are available. They constitute the data samples whose summary statistics are presented in Tables 2a and 2b. In accordance with the literature, openness enters into the model in logs. H denotes External Debt while C denotes openness. A more detailed graphical illustration of each variable is provided in Appendix 1.

Table 1. Descriptive statistics

	Mean	Standard deviation	Minimum	Maximum
Sample 1: (1985–2013)
CA/GDP	−0.110	0.490	−6.003	0.632
ED/GDP	81.927	70.362	2.000	581.207
Openness	67.023	1.715	10.748	217.305
Relative income	0.000	4.942	0.000	0.035
Growth	3.929	5.468	−50.248	35.224
Sample 2: (1985–2008)
CA/GDP	−0.087	0.421	−5.434	0.632
ED/GDP	95.799	83.138	2.000	581.207
Openness	63.096	1.727	10.748	209.891
Relative income	0.000	4.696	0.000	0.022
Growth	3.836	5.809	−50.248	35.224
Sample 3: (1990–2013)
CA/GDP	−0.122	0.522	−6.004	0.632
ED/GDP	83.977	80.171	2.000	581.207
Openness	68.783	1.676	1.031	217.305
Relative income	0.000	4.777	0.000	0.035
Growth	3.983	5.514	−50.248	35.224

Table 2a. Current account balance and external debt—random effects (RE) estimator

	(1)	(2)	(3)
Period	1985–2013	1985–2008	1990–2013
Observations	748	632	629
ED/GDP	0.0002	0.0000	0.0004
	(0.38)	(0.03)	(0.55)
l.ED/GDP	−0.00003	0.0004	−0.0003
	(0.06)	(0.005)	(0.38)
Relative Income	0.0148	0.0460	0.0543
	(0.24)	(0.70)	(0.83)
REER	−0.2961**	−0.2727**	−0.4457***
	(2.50)	(2.10)	(2.81)
Openness	−0.2927***	−0.255**	−0.3775***
	(2.60)	(2.10)	(2.81)
Domestic growth	0.0021	0.001	0.006*
	(0.87)	(0.27)	(1.66)
Int. aid flows	−0.38384***	−0.4125***	−0.4144***
	(3.29)	(3.31)	(2.67)
Terms of trade	−0.0629	0.01972	−0.1255
	(0.54)	(0.15)	(0.87)
Government consumption	0.01576**	0.0046	0.0059*
	(2.08)	(1.32)	(1.66)
Age dependency	−0.01302	−0.00798	−0.00051
	(0.72)	(0.41)	(0.03)
World real interest rate	0.01576**	0.0122	0.01539*
	(2.08)	(1.33)	(1.80)
R^2	0.1715	0.1918	0.1672
F-stat (p-value)	0.0006	0.0007	0.0007

Notes: All regressions have a constant term; t-values are in parentheses and estimation is by random effects method but fixed effects method is shown to be the appropriate method, as in the Hausman test in 2b. Dropping the lagged external debt does not change the coefficient of contemporaneous external debt.

* Indicate both statistical significance at 10% significance level and p < 0.1.

** Indicate both statistical significance at 5% significance level and p < 0.05.

*** Indicate both statistical significance at 1% significance level and p < 0.01.

Table 2b. Current account balance and external debt—Fixed effects (FE) estimator

	(1)	(2)	(3)
Period	1985–2013	1985–2008	1990–2013
Observations	748	632	629
ED/GDP	−0.001	−0.001**	−0.001
	(0.99)	(2.03)	(1.16)
l.ED/GDP	0.0000	0.0003	−0.0001
	(0.01)	(0.64)	(0.16)
Relative Income	−0.259**	−0.425***	−0.318**
	(2.38)	(2.96)	(2.34)
REER	−0.238*	−0.276*	−0.323*
	(1.93)	(1.96)	(1.93)
Openness	−0.272**	−0.275*	−0.356**
	(2.11)	(1.91)	(2.15)
Domestic growth	0.002	0.003	0.002
	(1.00)	(1.11)	(0.80)
Int. aid flows	−0.227*	−0.169	−0.057
	(1.78)	(1.19)	(0.33)
Terms of trade	−0.019	0.077	−0.074
	(0.16)	(0.54)	(0.47)
Government consumption	0.008**	0.009**	0.01**
	(2.52)	(2.23)	(2.60)
Age dependency	−0.012	0.017	0.0186
	(0.05)	(0.47)	(0.54)
World real interest rate	`	0.006	0.005
		0.361	(0.58)
R^2	0.015	0.056	0.046
F-stat [p-value]	0.0006	0.0081	0.0028
Hausman [p-value]	0.0043	0.0010	0.0011

Notes: All regressions have a constant term; t-values are in parentheses and estimation is by random effects method but fixed effects method is shown to be the appropriate method, as in the Hausman test in 2b. Dropping the lagged external debt does not change the coefficient of contemporaneous external debt.

* Indicate both statistical significance at 10% significance level and p < 0.1.

** Indicate both statistical significance at 5% significance level and p < 0.05.

*** Indicate both statistical significance at 1% significance level and p < 0.001.

Table 3. Current account balance and external debt: The role of trade openness: fixed effects (F) and random effects (R)

	(1)F	(2)F	(3)F	(1)R	(2)R	(3)R
Period	1985–2013	1985–2008	1990–2013	1985–2013	1985–2008	1990–2013
Observations	741	635	628	741	635	628
ED/GDP	−0.007*	−0.0060**	−0.0081*	−0.0065	−0.0432*	−0.008*
	(1.73)	(2.25)	(1.78)	(1.60)	(1.76)	(1.75)
ED/GDP × Openness	0.00446**	0.0365**	0.00506**	0.0045**	0.0319**	0.0548**
	(2.04)	(2.47)	(2.06)	(2.04)	(2.30)	(2.19)
l.ED/GDP	0.004	−0.0020	0.0053	0.0045	−.00366	0.005864
	(1.06)	(0.51)	−1.19	(1.12)	(0.91)	(1.31)
l.ED/GDP × Openness	−0.0022	0.0011	−0.0028	−0.0024	.0021341	−0.0032
		(0.52)	(1.20)	(1.12)	(1.00)	(1.35)
Rel. income	−0.241**	−0.4394***	−0.3412**	0.0422	0.0482	0.0705
	(2.09)	(2.95)	(2.39)	(0.74)	(0.80)	(1.20)
REER	−0.2842**	−0.3120**	−0.3800**	−0.327**	−0.3051**	−0.4836***
	(2.09)	(2.25)	(2.29)	(2.72)	(2.35)	(3.12)
Openness	−0.4991**	−0.7044***	−0.5856**	−0.4834***	−0.5694***	−0.5701***
	(2.59)	(3.18)	(2.44)	(2.89)	(3.03)	(2.92)
	(0.42)	(0.80)	(0.59)	(0.11)	(0.83)	(0.01)
Domestic growth	−0.026	0.0022	0.00273	0.0021	0.0079	0.0018
	(1.10)	(0.84)	(0.95)	(0.86)	(0.29)	(0.61)
Int. aid flows	−0.1401	−0.0928	0.0203	−0.4057***	−0.4079**	−0.4669019**
	(1.07)	(0.64)	(0.12)	(3.52)	(3.33)	(3.18)
Terms of trade	0.0073	0.1344	−0.0676***	−0.02935	0.0607	−0.0958
	(0.06)	(0.94)	(4.42)	(0.25)	(0.45)	(0.67)
Government consumption	0.02160***	0.0236***	0.0263***	0.0138***	0.01265**	0.0142***
	(4.03)	(3.52)	(4.13)	(2.98)	(2.34)	(2.77)
Age dependency	−0.0044	0.0184	0.0105	−0.0126	−0.0083	−0.0001
	(0.17)	(0.50)	(0.30)	(0.76)	(0.46)	(0.04)
World interest rate	0.0055	0.0028	0.0046	0.01597**	0.0109	0.0142*
	(0.65)	(0.29)	(0.49)	(2.10)	(1.19)	(1.66)
R^2	0.0139	0.0465	0.0313	0.1925	0.2014	0.1962
F-stat [p-value]	0.0000	0.0005	0.0002			0.0000
Hausman [p-value]	0.0000	0.0000	0.0000			0.0000

* Indicate both statistical significance at 10% significance level and p < 0.1.

** Indicate both statistical significance at 5% significance level and p < 0.05.

*** Indicate both statistical significance at 1% significance level and p < 0.01.

Table 4a. Current account balance adjustment and external debt—GMM

	(1)	(2)	(3)
Period	1985–2013	1985–2008	1990–2013
Observations	687	580	571
l.CA	0.7662***	0.0119***	0.7080***
	(114.92)	(3.23)	(103.02)
ED/GDP	−0.0003***	−0.0008***	−0.0001
	(3.24)	(7.45)	(0.55)
Relative income	−0.1054***	−0.2305***	−0.0758**
	(3.93)	(7.15)	(1.99)
REER	−0.1834***	−0.2170***	−0.1839***
	(5.34)	(5.20)	(3.66)
Openness	−0.2712***	−0.3073***	−0.3147***
	(6.36)	(10.80)	(5.49)
Domestic growth	0.0029***	0.0029***	0.0036***
	(4.12)	(3.01)	(3.65)
Int. aid flows	0.0299	0.1213**	−0.0164
	(1.25)	(2.35)	(0.56)
Terms of trade	0.1015**	0.04187	0.2075***
	(2.18)	(0.83)	(4.02)
Government consumption	0.0026***	0.0051***	0.001
	(2.69)	(10.85)	(0.89)
Age dependency	−0.0148	−0.0022	−0.0144
	(1.62)	(0.13)	(1.37)
World real interest rate	−0.0016	0.0051***	−0.0044**
	(1.11)	(3.63)	(2.58)
LR impact of ED on CA	−0.0013	−0.001	−0.0003
LR impact of Openness on CA	−1.1791	−0.3110	−1.0490

* Indicate statistical significance at 10% significance level; p < 0.1.

** Indicate statistical significance at 5% significance level; p < 0.05.

*** Indicate statistical significance at 1% significance level; p < 0.0.01.

Table 4b. Current account balance and external debt: The role of trade openness—GMM

	(1)	(2)	(3)
Period	1985–2013	1985–2008	1990–2013
Observations	687	580	571
l.CA	0.7270***	0.8931***	0.6819***
	(14.62)	(12.94)	(110.21)
ED/GDP	−0.0070***	−0.0041**	−0.0052**
	(3.43)	(2.88)	(2.84)
ED/GDP ×  Openness	0.0038***	0.0021**	0.0031***
	(3.55)	(2.78)	(3.23)
Rel. income	−0.1659***	−0.2187***	−0.1712***
	(4.01)	(4.25)	(2.22)
REER	−0.2060**	−0.0707	−0.1713***
	(2.09)	(0.44)	(3.12)
Openness	−0.5507***	−0.4795**	−0.4748***
	(4.15)	(3.26)	(3.62)
Domestic growth	0.0035	0.0019	0.0040*
	(1.87)	(1.52)	(2.81)
Int. aid flows	0.0681	0.1162*	−0.0343
	(1.18)	(1.87)	(0.07)
Terms of trade	0.1165	0.09295*	0.2230
	(1.45)	(1.94)	(1.45)
Government consumption	0.0063**	0.0082**	0.0788***
	(2.78)	(2.41)	(4.24)
Age dependency	0.0132	0.0083	−0.0126
	(0.52)	(0.22)	(0.62)
World real interest rate	−0.0321	0.0005	−0.0327
	(1.54)	(0.21)	(1.27)
LR impact of ED on CA	0.0096	−0.0051	−0.0081
LR impact of openness on CA	−0.7575	−0.5390	−0.696
LR impact of ED/GDP × Openness on CA	0.0052	0.0020	0.0045
Wald test	0.0000	0.0000	0.0000
1st-order serial correlation	0.0829	0.1693	0.0967
2nd-order serial correlation	0.2509	0.2198	0.2252
Sargan test	>0.10	>0.10	>0.10

Notes: In columns (1)–(3), the variables which are taken as current account determinants are instrumented and this reduces the sample size in relation to the previous sample size which ignored the possibility of joint endogeneity of the independent variables. Lagged external debt, as external debt variable, remains insignificant in all preceding regressions, so we drop it henceforth.

* Indicate both statistical significance at 10% significance level and p < 0.1.

** Indicate both statistical significance at 5% significance level and p < 0.05.

*** Indicate both statistical significance at 1% significance level and p < 0.01.

Table 5a. Current account balance and external debt: The role of trade openness—IV-2SLS

	(1)	(2)	(3)
Period	1985–2013	1985–2008	1990–2013
Observations	702	599	571
l.CA	0.8012***	1.000***	0.7762***
	(5.73)	(13.07)	(5.41)
ED/GDP	−0.0173*	−0.0168**	−0.0145*
	(1.92)	(2.00)	(1.72)
ED/GDP ×  Openness	0.0092*	0.0088**	0.0075*
	(1.94)	(2.01)	(1.73)
Rel. income	0.0096	−0.0243	−0.0073
	(0.40)	(1.29)	(0.31)
REER	0.2623	−0.0620	−0.1079
	(0.62)	(0.79)	(1.02)
Openness	−0.9216	−0.9647**	−0.8490
	(1.61)	(2.18)	(1.88)
Int.aid flows	0.0129	0.0972	−0.0265
	(0.08)	(1.19)	(0.66)
Terms of trade	0.0157	0.1111	−0.0478
	(0.22)	(1.02)	(0.97)
Government consumption	−0.0003	−0.0001	−0.0018
	(0.09)	(0.04)	(0.66)
Age dependency	0.0021	0.0112*	0.0959
	(0.23)	(1.87)	(1.29)
World real interest rate	0.0005	0.0030	0.0057
	(0.07)	(0.68)	(1.07)
R^2	0.7189	0.7949	0.7544
Wald test	0.0000	0.0000	0.0000
Endogeneity test ${\chi }^2(6)$	14.9398	14.7109	23.1222
p-value	0.0207	0.0226	0.0008
Endogeneity test $F(6,X)$	2.9811	4.088	4.874
p-value	0.007	0.0005	0.0001
Sargan test	0.3252	0.3804	0.6284
Bassman test	0.3294	0.3879	0.6348
Score test	0.3788	0.5210	0.7359

Notes: In columns (1)–(3), the endogeneity test is a core and regression tests which confirm all of the variables are not exogenous and at least one variable is endogenous and it is appropriate to address endogeneity issues, as we have done. For the robust regression F test, the value of X are 684, 581 and 574 for sample 1985–2013, 1985–2008 and 1990–2013 respectively. We have dropped the variable growth which remains insignificant in all these regressions. Standard errors are robust standard errors to accommodate any presence of heteroscedasticity as one can never count on homoscedasticity.

* Indicate both statistical significance at 10% significance level and p < 0.1.

** Indicate both statistical significance at 5% significance level and p < 0.05.

*** Indicate both statistical significance at 1% significance level and p < 0.01.

Table 5b. Current account balance and external debt: The role of trade openness—LIML

	(1)	(2)	(3)
Period	1985–2013	1985–2008	1990–2013
Observations	702	599	592
l.CA	0.8031***	0.9923***	0.7749***
	(5.72)	(12.35)	(5.40)
ED/GDP	−0.0192*	−0.0199*	−0.0159*
	(1.79)	(1.82)	(1.64)
ED/GDP ×  Openness	0.0102*	0.0104*	0.0083*
	(1.81)	(1.82)	(1.65)
Rel. income	0.0101	−0.0283	−0.0098
	(0.40)	(1.24)	(0.39)
REER	0.3340	−0.0771	−0.1122
	(0.70)	(0.81)	(1.00)
Openness	−1.0298	−1.1206**	−0.9209
	(1.53)	(1.98)	(1.80)
Int.aid flows	0.0395	0.1184	−0.0097
	(0.22)	(1.30)	(0.07)
Terms of trade	0.0202	0.1420	−0.04497
	(0.26)	(1.06)	(0.84)
Government consumption	−0.0001	−0.0005	−0.0015
	(0.04)	(0.24)	(0.72)
Age dependency	0.0019	0.0124*	0.0103
	(0.20)	(1.83)	(1.30)
World real interest rate	−0.0004	0.0026	0.0061
	(0.04)	(0.54)	(1.08)
R^2	0.6948	0.7629	0.7352
Wald test	0.0000	0.0000	0.0000
Over identifying restrictions tests
Anderson-Rubin test ${\chi }^2(2)$	0.9320	1.8104	0.9132
p-value	0.3343	0.4045	0.6334
Basmann test $F(2,X)$	0.9147	0.8840	0.4458
p-value	0.3392	0.4137	0.6405

Note: In columns (1)–(3), the null hypothesis for the over identifying restrictions is that there is over identifying restrictions and the instruments used are valid. A P-value greater than 0.10 means the null cannot be rejection which implies the model is well specified. This conclusion is well supported by both Anderson-Rubin and Basmann tests for over identifying restrictions presented in the table. For the Basmann F test, the value of X are 689, 585 and 578 for sample 1985–2013, 1985–2008 and 1990–2013, respectively. We have dropped the variable growth which remains insignificant in all these regressions.

* Indicate both statistical significance at 10% significance level and p < 0.1.

** Indicate both statistical significance at 5% significance level and p < 0.05.

*** Indicate both statistical significance at 1% significance level and p < 0.01.

Table 6. Current account balance and external debt: the role of trade openness—PMG

Period	1985–2013	1985–2008	1990-2013	1985–2013	1985–2008	1990–2013
Observations	736	676	642	736	676	642
	(1) PMG	(2) PMG	(3) PMG	(1) MG	(2) MG	(3) MG
Speed of adjustment (ec)	−0.4689***	−0.3899***	−0.4702***	−0.6206***	−0.5664***	−0.8326***
	(4.85)	(7.54)	(8.85)	(7.70)	(9.17)	(4.07)
Long-run coefficients of interest
ED/GDP	−0.0418***	0.0027***	−0.0033***	−0.4854	−9.6056	0.1440
	(6.77)	(5.48)	(4.87)	(1.10)	(0.98)	(0.68)
Openness	−0.3974***	−0.4225***	−0.3688***	−4.5912	−103.1143	2.0275
	(7.81)	(7.41)	(6.96)	(0.94)	(0.99)	(0.88)
ED/GDP × Openness	0.0026***	0.0027***	0.0211***	0.2322	4.5187	−0.0668
	(7.42)	(6.23)	(5.31)	(1.10)	(0.98)	(0.68)
Average short-run coefficients
ED/GDP	0.0624	0.0391	0.0529	0.1807	0.0650	0.0484
	(0.95)	(1.12)	(0.93)	(0.94)	(0.76)	(1.28)
ED/GDP × Openness	−0.0302	0.0181	−0.0246	−0.0853	−0.0301	−0.0228
	(0.98)	(1.10)	(0.97)	(0.94)	(0.74)	(1.35)
Rel. income	−0.776*	0.2603*	−0.3711	−0.69265	0.08648	−0.4097*
	(1.76)	(2.13)	(1.52)	(1.43)	(0.65)	(1.88)
REER	−1.5231	−0.6998	−0.6431	−0.281471	−0.1436274	−1.06233
	(1.13)	(0.97)	(0.76)	(0.41)	(0.72)	(0.99)
Openness	0.2719	0.0213	0.5611	1.42389	0.953543	1.41279
	(0.90)	(0.06)	(1.01)	(0.99)	(1.08)	(1.44)
Age dependency	−0.1464		−0.4805	0.243156		−0.20304
	(0.26)		(1.45)	(0.67)		(0.51)
World real interest	–		−0.0055			−0.00854
	–		(0.59)			(1.16)
Domestic growth	0.0091			0.0045*
	(1.34)			(1.71)
Government consumption	0.0112			0.000003
	(1.27)			(0.02)
Hasman test (p-value)	(0.4115)	(0.7593)	(0.6933)	(0.4115)	(0.7593)	(0.6933)

Note: Following the decline in domestic savings, surge in external debt and sluggish economic growth recorded in SSA in the early 1980s to mid-1990s, SSA countries reduced their appetite for external debt through domestic and external support via debt forgiveness. (1) PMG is controlled with the whole control variables, (2) and (3) use less control variables.

* Indicate both statistical significance at 10% significance level and p < 0.1.

** Indicate both statistical significance at 5% significance level and p < 0.05.

*** Indicate both statistical significance at 1% significance level and p < 0.01.

Table 7. Short-run results of individual countries

	1985–2013						1985–2008						1990 –2013
	Speed of adj.	ED/GDP	Openness	ED/GDP*openness	Rel.income	REER	Speed of adj.	ED/GDP	Openness	ED/GDP*openness	Rel.income	REER	Speed of adj.	ED/GDP	Openness	ED/GDP*openness	Rel.income	REER
Angola	−1.0192***	0.0008	0.9809***	−0.0015	0.3333	−0.3351	−0.3110**	−0.0003	0.144	−0.000028	0.09379	0.0531	−0.2592	0.0014	0.5267	−0.0007	0.277	0.0932
	(4.87)	(−0.22)	(0.05)	(0.91)	(1.49)	(1.61)	(2.35)	(0.08)	(0.44)	(0.02)	(0.36)	(0.29)	1.44	0.30	1.48	0.34	1.00	0.49
Burundi	−0.7145***	−0.0057*	−0.3232	0.0027	−0.5639**	0.0802	−0.8659***	−0.00209	0.0115	−0.0001	−0.5608*	−0.7743	−0.4505**	−0.0761*	−0.4249	0.0036	−0.7858**	0.1064
	(4.20)	(1.71)	(1.29)	(1.37)	(2.77)	(0.42)	(4.39)	(0.52)	(0.03)	(0.04)	(1.90)	(0.41)	(2.74)	1.83	1.36	1.47	2.86	0.42
Benin	−0.8855***	0.01341	0.6252**	−0.0087*	−0.2945	0.3187**	−0.6208***	−0.0301**	−1.6848***	0.01782**	0.1342	0.0373	−0.8436	0.0132	0.5824*	−0.091	−0.5007**	0.5829***
	(4.28)	(1.61)	(2.00)	(1.79)	(1.60)	(2.34)	(3.87)	(2.60)	(3.78)	(2.57)	(0.78)	(0.31)	(5.19)	(1.22)	(1.92)	(1.46)	(2.66)	(3.72)
Botswana	−0.3036*	−0.3534***	−1.8056**	0.1764***	0.2639	−1.1133	−0.6744**	−0.1709	−0.7048	0.0886	0.5868	−1.0222	−0.3447*	−0.1325	−0.4157	0.0623	0.0569	−1.1501
	(1.81)	(3.17)	(2.03)	(3.15)	(0.81)	(1.41)	(2.77)	(1.33)	(0.73)	(1.41)	(1.49)	(1.21)	2.23	0.64	0.31	0.59	0.15	1.67
Cape Verde	−0.2688**	0.0021	0.1699	−0.0114	−0.1047	0.1368	−0.8695***	0.0014	0.2593	−0.0005	0.1195	0.0202	−0.1087	0.001	0.1664	−0.005	−0.0844	0.1237
	(2.32)	(0.48)	(1.46)	(0.38)	(0.76)	(1.02)	(4.82)	(0.30)	(1.69)	(0.18)	(0.87)	(0.17)	1.22	0.19	1.19	0.16	0.51	0.82
Cameroon	−0.2630**	0.0057	0.3393	−0.00278	0.08631	0.1501	−0.1832	0.0054	0.24111	−0.0026	0.13256	0.3027	−0.19213	0.0483	0.1383	−0.023	−0.0939	0.4342
	(2.11)	(1.18)	(0.46)	(1.16)	(0.27)	(0.09)	(1.27)	(1.02)	(0.28)	(0.99)	(0.34)	(0.17)	1.46	0.91	0.16	0.86	0.26	0.17
Congo, Rep	−0.4805***	−0.0637	−1.6159*	0.0325	−0.0249	−1.0714	−0.5513**	−0.0928*	−2.3590**	0.0489*	−0.0506	−0.4488	−0.5489	−0.0517	−1.278	0.0237	−0.5043	−1.7423
	(3.09)	(1.68)	(1.97)	(1.66)	(0.06)	(0.82)	(2.91)	(1.98)	(2.20)	(1.95)	(0.10)	(0.29)	2.55	1.12	1.26	0.99	0.96	1.27
Ethiopia	−0.3973**	−0.0001	0.1114	0.0003	0.1809	−0.2594	0.4866*	0.0001	0.0578	0.0001	0.3191**	0.0822	−0.7611	0.0035	−0.1327	0.024	−0.1857	−0.0744
	(2.25)	(0.05)	(0.53)	(0.16)	(1.27)	(1.29)	(1.91)	(0.03)	(0.25)	(0.05)	(2.06)	(0.22)	2.67	1.01	0.53	1.05	0.88	0.27
Gabon	−0.6061***	0.02835	2.6504**	−0.0152	0.2701	0.1031	−0.5280***	0.0279	2.7236**	−0.0152	0.2001	0.0711	−0.5265	0.07616	6.905	−0.0423	−0.78388	0.6367
	(3.42)	(0.90)	(2.27)	(0.98)	(0.63)	(0.29)	(3.16)	(0.85)	(2.26)	(0.94)	(0.44)	(0.20)	2.01	1.29	2.34	1.39	1.04	1.03
Ghana	−0.3652**	0.0346	−0.0017	−0.0018	0.17611	−0.1977	−0.3715**	0.0014	−0.1143	−0.0003	0.3712	−0.1455	−0.3386	−0.0018	−0.2009	0.00101	0.0001	0.0659
	(2.48)	(0.72)	(0.01)	(0.71)	(0.98)	(1.38)	(2.41)	(0.25)	(0.49)	(0.09)	(1.66)	(0.94)	2.05	0.28	0.76	0.30	0.00	0.26
Guinea	−0.1985	−0.0524	−0.3171	0.0022	−0.6080*	0.088	−0.4062	−0.0017	−0.0189	0.0006	−0.3354	0.0328	−0.1592	−0.00715	−0.4579	0.0029	−0.6652	−0.0267
	(1.02)	(0.40)	(0.58)	(0.33)	(1.95)	(0.78)	(1.74)	(0.15)	(0.03)	(0.09)	(1.23)	(0.34)	0.98	0.51	0.79	0.42	1.59	0.01
Gambia	−0.3299**	0.0063	0.3436	−0.0028	0.3005	−0.0083	−0.7019***	0.0027	0.2421	−0.0009	0.3675	0.0222	−0.5412	0.0083	0.37336	−0.0041	0.0095	−0.1681
	(2.52)	(1.66)	(1.68)	(1.36)	(1.31)	(0.03)	(3.40)	(0.62)	(1.04)	(0.40)	(1.52)	(0.09)	3.96	1.41	1.22	1.16	0.03	0.65
Madagascar	−0.2493*	0.0154	0.5859	−0.0088	0.6726		−0.2552	0.0332	1.5267	−0.0179	0.9984**	−1.3049**	−0.29326	0.0247	0.7107	−0.01347	0.6224	−1.2434
	(1.86)	(0.77)	(0.81)	(0.84)	(1.56)	(2.68)	(1.60)	(1.31)	(1.47)	(1.34)	(2.07)	(2.67)	1.71	0.85	0.81	0.91	1.28	2.40
WSM	−0.1946**	−0.082	−1.3336	0.0331	−2.7833	−0.4762	−0.07	−0.1001	−2.27	0.04341	−0.9152	−0.2824	−0.2344	−0.0398	−0.0643	0.0142	−3.9872	−0.4658
	(2.34)	(1.10)	(0.83)	(1.00)	(1.71)	(1.72)	(0.77)	(1.28)	(1.29)	(1.24)	(0.52)	(0.94)	2.37	0.47	0.03	0.38	1.90	1.67
Kenya	−0.5749***	0.0046	0.3367	−0.026	−0.0088	0.0704	−1.2098***	0.0055*	0.4228**	−0.0034*	0.135	0.0321	−0.784467	0.0018	0.2813	−0.012	−0.0391	0.026689
	(3.41)	(1.14)	(1.39)	(1.12)	(0.07)	(1.19)	(5.56)	(1.81)	(2.18)	(1.91)	(1.31)	(0.84)	4.02	0.30	0.83	0.36	0.31	0.24
Seychelles	−0.0526	−0.2228	0.2525	0.000	−0.2228	0.0167	−0.1959	0.0014	0.3623	−0.001	−0.211	0.019	0.0575	−0.0039	−0.1701	0.0023	−0.08241	0.0437
	(0.54)	(1.26)	(0.64)	(0.02)	(1.26)	(0.09)	(1.45)	(0.31)	(0.91)	(0.41)	(1.15)	(0.08)	0.84	1.09	0.52	1.21	1.05	0.53
Sierra Leone	−0.1554*	−0.0242	−0.2083	0.0116	−0.1205	0.039214	−0.4481**	−0.0005	0.0852	0.0014	−0.0157	0.0802	−0.1924	−0.0197	−0.1765	0.0094	−0.0824	0.0437
	(1.90)	(1.21)	(0.81)	(1.21)	(1.64)	(0.47)	(2.54)	(0.02)	(0.28)	(0.12)	(0.19)	(0.74)	2.18	0.84	0.66	0.84	1.05	0.53
South Africa	−0.0803	0.0007	−0.4587	−0.0007	−0.3068	−0.25401	0.0133	0.0147**	0.5619	−0.0086***	−0.4008**	−0.2716	−0.2345	0.0004	−0.5728	−0.0005	−0.498	−0.0943
	(0.79)	(0.30)	(1.65)	(0.30)	(1.65)	(1.21)	(0.11)	(2.64)	(1.46)	(2.83)	(2.26)	(1.50)	2.04	0.09	2.17	0.25	2.77	0.45
Mauritania	−0.3136	0.0444	0.3428	−0.02169	0.1571	−0.3487	−0.3039	−0.0196	−0.3084	0.0111	0.1138	−0.3981	−0.3566	0.0587	0.4932	−0.02878	0.16135	−0.4613
	(1.64)	(1.09)	(0.76)	(1.07)	(0.74)	(0.60)	(0.89)	(0.19)	(0.30)	(0.21)	(0.47)	(0.30)	1.66	1.44	1.02	1.43	0.76	0.77
Mauritius	−0.4997***	0.0052	0.4273	−0.0029	0.1649	−0.0588	−0.3399	0.0014	−0.0108	0.0001	0.7534**	−0.0421	−0.3507	0.0046	0.3415	−0.0028	−0.01939	0.0054
	(2.94)	(1.40)	(1.67)	(1.45)	(0.91)	(0.46)	(1.59)	(0.28)	(0.03)	(0.03)	(2.06)	(0.25)	2.33	1.08	1.11	1.16	0.09	0.02
Malawi	−0.1701**	0.0192***	0.3330**	−0.1259***	0.2705**	−0.0367	−0.1497**	0.0193***	0.3387**	−0.0127***	0.2814**	−0.0657	−0.1214	0.0187	0.1906	−0.01227	0.1769	−0.03929
	(2.45)	(6.32)	(2.19)	(6.78)	(2.21)	(0.26)	(2.59)	(6.52)	(2.18)	(7.02)	(2.37)	(0.47)	1.50	5.19	0.90	5.53	1.38	0.25
Namibia	−0.5799***	0.0016	0.1441	−0.0014	−0.0269	−0.5486** −0.0269	0.0715	−0.0637	0.000	−0.0773	−0.0773	−0.4836	0.0015	0.0834	0.0834	0.0108	0.04193
	(3.23)	(0.96)	(0.74)	(1.10)	(0.13)	(0.42)	(2.66)	(0.44)	(0.32)	(0.01)	(0.33)	(1.25)	2.75	0.73	0.25	0.63	0.03	0.42
Sudan	−0.1784	−0.0007	−0.2676	0.0009	0.1443	0.0366	−0.4004***	−0.0045**	−0.6305**	0.0029**	−0.0792	−0.0763	−0.4685	0.0021	−0.1495	−0.0008	0.1511	0.107
	(1.39)	(0.38)	(1.26)	(0.79)	(0.79)	(0.37)	(3.24)	(2.03)	(2.59)	(2.19)	(0.42)	(0.82)	3.19	1.12	0.82	0.65	0.88	0.77
Nigeria	−0.1622	1.6264	20.481	−0.6927	7.3044	−27.216**	0.0631	−1.0275	−8.7267	0.4798	4.1669	−21.41***	−0.1607	1.6272	20.4697	−0.6931	7.2822	−27.2398
	(1.53)	(0.90)	(1.45)	(0.83)	(1.32)	(2.09)	(0.61)	(0.91)	(0.78)	(0.94)	(1.43)	(3.15)	1.53	0.90	1.45	0.83	1.31	2.09
Rwanda	−0.4511**	0.0435	1.074	−0.0217	−1.9001	5.54**	0.1197	0.0391	1.1316	−0.0191	1.2194	3.6992**	−0.3838	0.0734	1.3018	−0.0345	−4.808	5.7646
	(2.64)	(1.45)	(1.00)	(1.66)	(1.01)	(2.01)	(0.70)	(1.77)	(1.60)	(1.76)	(1.23)	(2.54)	2.07	1.60	1.01	1.78	1.78	1.73
Swaziland	−0.1583**	0.0026	0.1217	−0.0015	0.3287**	−0.1503	0.1053	0.0812	−0.0007	0.31553	−0.0007	−0.0389	−0.5654	0.0008	−0.5654	0.0008	−0.00055	0.0447
	(2.12)	(0.78)	(0.70)	(0.81)	(2.44)	(0.80)	(1.56)	(0.15)	(0.24)	(0.27)	(2.17)	(0.50)	4.37	0.30	0.93	0.37	3.32	0.87
Tanzania	−0.1072	0.0084	0.5261*	−0.0464	−0.0385	−0.0499	−0.1032	0.009	0.5679	−0.0051	−0.0641	−0.0919	−0.2177	0.01166	0.693	−0.00634	0.0139	−0.0184
	(1.15)	(1.61)	(1.82)	(1.68)	(0.41)	(0.42)	(0.78)	(1.61)	(1.76)	(1.69)	(0.55)	(0.70)	1.47	1.88	1.99	1.95	0.13	0.17
Togo	−0.4869	0.0064	−1.6837*	−0.0319	−0.3353	0.3866	−1.1222***	0.039	5.5048	−0.0224	0.132	0.635	−0.5207	−0.0036	−2.4194	−0.0022	−0.1539	−0.2285
	(1.63)	(0.60)	(1.84)	(0.59)	(0.53)	(0.23)	(4.84)	(1.60)	(1.35)	(1.65)	(0.41)	(0.71)	2.65	0.49	2.85	0.57	0.69	0.33
Zambia	−0.3054*	0.0212	0.2267	−0.0122	−0.024	–0.1421 0.1075	0.0015	−0.1718	0.000	−0.0742	−0.0205	−0.1234	0.00645	−0.1234	0.00645	−0.0947	−0.0151
	(1.84)	(0.95)	(0.70)	(0.96)	(0.27)	(0.72)	(1.28)	(0.11)	(0.83)	(0.01)	(1.04)	(0.16)	1.38	0.45	0.09	0.47	1.02	0.10
Lesotho	−0.7789***	−0.0004	−0.0894	0.0002	0.1777	0.2528	−0.6841***	−0.0004	−0.0494	0.0002	0.2747	0.1996	−0.8204	0.00004	−0.0132	−0.0003	0.06171	−0.0908
	(3.81)	(0.11)	(0.27)	(0.11)	(0.92)	(1.04)	(3.04)	(0.08)	(0.12)	(0.08)	(0.93)	(0.67)	5.14	0.01	0.04	0.17	0.35	0.41

* Indicate statistical significance at 10% significance level; p < 0.1.

** Indicate statistical significance at 5% significance level; p < 0.0.05.

*** Indicate statistical significance at 1% significance level; p < 0.0.01.

Table 8. Current account balance and external debt: The role of trade openness-dynamic fixed-effects.

	1985–2013	1985–2008	1990−2013
	DFE(1)	DFE(2)	DFE(3)
l.CA/GDP	0.8259***	0.1721***	0.8235***
	(37.97)	(3.99)	(34.61)
ED/GDP	−0.0271**	−0.0245**	−0.0302*
	(2.03)	(2.11)	(1.95)
ED/GDP ×  Openness	0.0014**	0.0012*	0.0015*
	(2.03)	(1.80)	(1.94)
Relative Income	−0.1002	−0.1596*	−0.1095
	(1.46)	(1.82)	(1.35)
REER	−0.0762	−0.0606	−0.0654
	(1.02)	(0.82)	(0.67)
Openness	−0.3327***	−0.3093***	−0.3806***
	(3.10)	(2.69)	(2.93)
Domestic growth	0.0024	0.0040***	0.0025
	(1.66)	(3.29)	(1.45)
Int. aid flows	−0.0006	0.0698	0.0173
	(0.01)	(0.84)	(0.17)
Terms of trade	0.0509	0.0324	0.0612
	(0.70)	(0.43)	(0.65)
Government consumption	0.0013	0.0036*	0.0018
	(0.66)	(1.69)	(0.78)
Age dependency	0.0106	0.0460	0.0129
	(0.66)	(0.24)	(0.65)
World real interest rate	−0.0030	0.0029	−0.0033
	(0.62)	(0.64)	(0.60)
LR impact of interactive	0.0080	0.0015	0.008
No of observations	727	543	620
R^2	0.7740	0.0211	0.6898
F-test	0.0000	0.0001	0.0000
Cross-sec dep test	0.215	0.230	0.219

Note: Coefficients are rounded to 4 decimal places. First-differenced dependent variable in the second column to ensure stationary. We also added gross savings to the regression—coefficient turned out insignificant & not reported. Absolute values of the t-statistic are in parenthesis (). Following Pesaran (2004), we performed a cross sectional dependency test to check for the existence of cross sectional dependence of error terms. Results suggest no significant evidence of cross sectional dependence at the conventional significance levels, i.e. 5%. In all, the magnitude and direction of coefficients of the interactive term are of most importance as we check for their robustness.

* Indicate both statistical significance at 10% significance level and p < 0.1.

** Indicate both statistical significance at 5% significance level and p < 0.05.

*** Indicate both statistical significance at 1% significance level and p < 0.01.

Table 9. Coefficients of the interactive term for different methods of estimation

	1985–2013	1985–2008	1990–2013
Fixed effects (FE)	0.0045**	0.0037**	0.0051**
Generalized method of moments (GMM)	0.0038***	0.0021***	0.0031***
IV-two stage least squares (IV-2SLS)	0.0092*	0.0088**	0.0075*
Limited info maximum likelihood (LIML)	0.0102*	0.0104*	0.0083*
Pooled mean group (PMG)	0.0026***	0.0027***	0.0021***
Dynamic fixed effects (DFE)	0.0014**	0.0012*	0.0015*
Average	0.0053	0.0048	0.0046
Median	0.0038	0.0027	0.0031

Note: The random effects (RE) and mean group (MG) estimators are not reported here because the Hausman test performed in each case suggests the use of fixed effects (FE) and pooled mean group (PMG) respectively.

* p < 0.1.

** p < 0.05.

*** p < 0.01.

Table

Code	Country	SSA Region	GDP/ capita (US$)	Code	Country	SSA Region	GDP/capita (US$)
AGO	Angola	Southern Africa	3,679	MRT	Mauritania	SSA/Maghreb	1,084
BDI	Burundi	East Africa	199	MUS	Mauritius	East Africa	1,084
BEN	Benin	West Africa	682	MWI	Malawi	Southern Africa	1,084
BWA	Botswana	Southern Africa	6,051	NAM	Namibia	Southern Africa	4,595
COM	Comoros	East Africa	741	NGA	Nigeria	West Africa	1,802
COG	Congo, Rep	Central Africa	2,633	RWA	Rwanda	East Africa	498
CPVD	Cape Verde	West Africa	3,147	SDN	Sudan	North/East Africa	1,261
ETH	Ethiopia	East Africa	334	SIE	Sierra Leone	West Africa	491
GAB	Gabon	Central Africa	9,030	SWA	Swaziland	Southern Africa	2,711
GHA	Ghana	West Africa	1,194	SYC	Seychelles	East Africa	12,105
GIN	Guinea	West Africa	426	TAZ	Tanzania	East Africa	671
GMB	Gambia	West Africa	495	TGO	Togo	West Africa	499
KEN	Kenya	East Africa	503	WSM	Sao Tome Principe	West Africa	1,198
LST	Lesotho	Southern Africa	919	ZAF	South Africa	Southern Africa	6,391
MDG	Madagascar	Southern Africa	392	ZAM	Zambia	Southern Africa	1,285

Table

Variable	Sources	Description
Current account balance (CA)	World Bank and IMF IFS	Current account deficit as a percentage of GDP
Real effective	Zsolt/World Bank Exchange Rate	REER represents the multilateral real exchange rate, in logarithm
Terms of trade (TOT)	World Bank	Terms of trade is calculated as the ratio of export prices to import prices (base 2000 = 100), in logarithm
International aid	World Bank	International aid is the ratio of the effective development assistance (EDA) to GDP. It measures the aggregate aid flows combining total grants and the grant component of all official loans
External debt (ED)	World Bank	External debt is measured as the ratio of a country’s total external debt to GDP
World real interest rate	World Bank	Taken as the real interest rate of the US—which is the annualized nominal interest rate less average annual inflation rate
Trade openness	World Bank	Calculated as the sum of exports and imports as a fraction of GDP, in logarithm
Domestic relative income level	World Bank	Ratio of domestic output to the US output, expressed in logarithm
Domestic growth dependency ratio	World Bank	Yearly percentage growth in per capita GDP