Current account and international networks

Abstract

The world economy has become remarkably interconnected. Recent waves of trade liberalization, financial deregulation, and technological advances have facilitated growth in international flows of goods, services, and financial assets. The expansion of intercountry trading have contributed to growing current account imbalances (see Caballero, Farhi, & Gourinchas, 2008). In the scope of increasing globalization, international trade and financial networks have emerged as important drivers of several global economic phenomena including financial contagions and systemic risk spread (see, e.g., Gai & Kapadia, 2010 and Kali & Reyes, 2010). The question arises whether a country's position in these international networks has any impact on its current account, above and beyond the traditional measures of trade openness and financial development. This question is of significant policy importance: given recent concerns about the tendencies of growing gross international flows and current account