EC-IILS Joint Discussion Paper Series No. 4

Determinants of global imbalances: Economic, institutional and social factors that shape the global economy

This paper offers an enriched analysis of underlying determinants of current account positions. In particular, it focuses on the interactions between current account imbalances and changes in labour supply, capital account liberalization, income inequality and social policies. Given the global nature of the phenomenon, the analysis presented here is based on broad country coverage, accounting for country heterogeneity. In order to cover long-run trends, the analysis presented here dates back to the 1980s or – in case of data limitations – to the early 1990s. The two novelties of our analysis are that (i) we include wage share measures as an important determinant to current account balances and (ii) we add income inequality measures such as the Gini coefficient and household poverty measures into our regression analysis.