engleski

International Intertemporal Solvency: The Case of the Republic of Croatia

For many years, the Republic of Croatia was confronted with a current account deficit. The current account deficit was financed by going into debt abroad and sometimes by selling stateowned property. However, in the last few years, more precisely from 2013, the current account balance has been in surplus. In the main, this surplus is a result of the increase of the balance of services surplus. The goal of this paper is to answer the question: Could the current account surplus, which is realized in the last few years, despite the long run deficit in the past, mean international intertemporal solvency of the Republic of Croatia? In order to address the aforementioned question, a stationarity of the current account balance and the ratio of the current account balance to gross domestic product are tested. This is conducted by using several unit root tests, namely the ADF test, the KPSS test, the DF-GLS test and the HEGY test. Actually, the satisfaction of the international intertemporal solvency condition means that the change in the country's obligations to the rest of the world, that is, its current account balance, must be stationary. However, the research results do not support international intertemporal solvency of the Republic of Croatia. The unit root tests indicated that both the current account balance and the ratio of the current account balance to gross domestic product are nonstationary variables, which implies international intertemporal insolvency in the Republic of Croatia. Still, it could be expected that, if the surplus of the current account continues to increase, the Republic of Croatia should not have problems with international intertemporal insolvency.

international intertemporal solvency ; unit root tests ; the current account ; stationarity ; the balance of payments ;

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