Determinants of Current Account Developments in Croatian Balance of Payments

The main aim of this paper is to investigate the most important determinants of the current account developments in Croatian balance of payments during the 1995-2007 period. The current account analysis is a useful tool for the national economic policy creators, enabling them to explain current account developments and to propose adequate economic policy measures in order to achieve sustainable levels. By using of simple econometrics techniques and methods, the impact of 24 potentially significant macroeconomic variables on current account developments during the period of observation has been evaluated, and finally, set of equations with lower number of variables which has the most significant impact on current account developments in Croatia is presented. The estimations show that consumption, interest rate spread, net foreign assets and gross fixed capital formation has a significant impact, while net FDI inflows and external debt has a non-significant and negative impact on current account. Also, a relatively strong impact of gross fixed capital formation in previous periods (with the time lag of two quarters) is observed. Following the main research results, a set of recommendations is outlined for the purpose of efficient national macroeconomic policy management.