TY - JOUR AU - Ito, Hiro AU - Chinn, Menzie TI - East Asia and Global Imbalances: Saving, Investment, and Financial Development JF - National Bureau of Economic Research Working Paper Series VL - No. 13364 PY - 2007 Y2 - September 2007 DO - 10.3386/w13364 UR - http://www.nber.org/papers/w13364 L1 - http://www.nber.org/papers/w13364.pdf N1 - Author contact info: Hiro Ito Department of Economics, Portland State University 1721 SW Broadway, Suite 241 Portland, OR 97201 E-Mail: ito@pdx.edu Menzie D. Chinn Department of Economics University of Wisconsin 1180 Observatory Drive Madison, WI 53706 Tel: 608/262-7397 Fax: 608/262-2033 E-Mail: mchinn@lafollette.wisc.edu M1 - published as Hiro Ito, Menzie Chinn. "East Asia and Global Imbalances: Saving, Investment, and Financial Development," in Takatoshi Ito and Andrew K. Rose, editors, "Financial Sector Development in the Pacific Rim" University of Chicago Press (2009) M3 - presented at "18th Annual East Asian Seminar on Economics", June 22-24, 2007 AB - We investigate the role of budget balances, financial development and openness, in the evolution of global imbalances. Financial development -- or the lack thereof -- has received considerable attention as a possible contributing factor to the development of persistent and expanding current account imbalances. Several observers have argued that the depth and sophistication of US capital markets have caused capital to flow from relatively underdeveloped East Asian financial markets. In this paper, we extend our previous work by examining the effect of different types and aspects of financial development. Our cross-country analysis, encompassing a sample of 19 industrialized countries and 70 developing countries for the period of 1986 through 2005, yields a number of new results. First, we confirm a role for budget balances in industrial countries when bond markets are incorporated. Second, empirically both credit to the private sector and stock market capitalization appear to be equally important determinants of current account behavior. Third, while increases in the size of financial markets induce a decline in the current account balance in industrial countries, the reverse is more often the case for developing countries, especially when other measures of financial development are included. However, because of nonlinearities incorporated into the specifications, this characterization is conditional upon other factors. Fourth, a greater degree of financial openness is typically associated with a smaller current account balance in developing countries. ER -