Investigations economy, thus, playing crucial roles and guiding

Investigations into the
recently widening global imbalance mostly, as it affects the historically
growing current account deficits of most economies has become a pervading trend
and has attracted sufficient traction and exposition in international economics
debate. In this, an expanding theoretical and empirical interest has been
developed regarding the impact of current account deficits especially, in
developing economies. The current account position is a critical pointer to the
direction of an economy, thus, playing crucial roles and guiding policy makers’
analysis of past and present economic trends and has contributed to the already
heated debate on the impact of globalisation on developing economies. This is
because unlike developed economies, developing economies face severe credit
constraints such that the behaviour of their current account is largely driven
by external shocks due to their dependence on foreign credit markets (Calderon
et al., 2002).

Large and persistent current
account deficit holds serious implications for an economy for several reasons,
some of which may be directly or indirectly viewed as indications of potential
macroeconomic imbalance. Within the national income identity, the current
account position offers a direct image of a country’s savings – investment
linkages, indirectly revealing the level of fiscal deficit as well as private
savings, which are leading factors that determine the level of growth in an
economy. On the external sphere, it is a direct reflection of a country’s total
transaction with the rest of the world on the international market for goods
and services and indirectly shows the country’s stock of claims and liability
with the rest of the world (Aristovnik, 2007).

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As shown in figure 1 above, the
current account deficit of most Sub-Saharan African economies are high by
historical standards in comparison with other developing economies. On the
average, the economies in our sample failed to keep their current account
deficit within the 5% benchmark. From the period 1980 to 2015, the average of
current account deficit in these economies stood at approximately 6.2 percent
of GDP. Throughout this period, countries such as Kenya, Senegal, Burkina Faso,
Tanzania, Mozambique and Madagascar never witnessed current account surplus. Even
more, over the last decade, current account deficit has risen given the
inability of these economies to resist external trade shocks during this
period. For instance, between 2007 and 2015, the average current account
deficit rose to approximately, 8% of GDP in these economies.       

Consequently, current account
dynamics has been given fresh attention following the recent global financial
crisis 2007-2009 and global imbalances in most developed economies. A lot of
literature has been dedicated to different dimensions of this issue with most
econometric results reflecting doubts concerning the sustainability of the
current account deficits of many developing economics (see e.g., Brissimis et
al., 2010). Instead, we build on the argument of Herrman and Jochem (2005) and
question whether the current deficit will decrease over time following
adjustments of strategic macroeconomic variables such as government spending,
private consumption, inflation rate, financial reforms index, public and
private investment and the real exchange rates. Being aware of lessons from
literature concerning the response of current account to external shocks, we also
control for external factors such as the level of economic integration and the
present stage of development in most sub-Saharan Africa.    

Against this background, the
main objective of this paper is to examine the development of current account
balance in Sub-Saharan Africa. To do this, we construct and estimate suitable
empirical models using a representative panel of fourteen countries drawn from
different regions in Africa. Our analysis spans through a period of 26 years
(1990 – 2015) and aims to examine the profile and development of the current
account deficit of the selected economies while the econometric analysis aims
at revealing the fundamental macroeconomic, financial and external factors that
explain the behaviour of current account in this economies such as gross
domestic product per capita, government debt, savings, inflation rate, a
measure of financial deepening, reel exchange rate, terms of trade and level of
economic integration.

Following the introduction,
the rest of the paper is organised as follows, the next section examines the
profile and development of current account balance in our selected economies.
The third section presents the theoretical framework and a brief survey of
previous empirical studies while our economic model is specified and the
variables in the model are described with sources of our data and preliminary
analysis are discussed in the fourth section. Our empirical results are
presented and discussed in the fifth section while the conclusion and the
policy implication of our findings appear in section six.