Financial Markets And The Current Account - Emerging Europe Versus Emerging Asia

Financial globalization has been associated with divergent current account patterns in emerging market economies. While countries in emerging Asia have been running sizeable current account surpluses, countries in emerging Europe have been facing large current account deficits. In this paper the authors test for the relevance of financial market characteristics in explaining divergent current account patterns in emerging Europe and emerging Asia based on the assumption that both regions constitute two different convergence clubs with the euro area and the US representing the core, respectively. In line with the theoretical literature, they find that better developed and more integrated financial markets increase emerging markets´ ability to borrow abroad.