Investigating the Relationship between Current Account Deficit and Capital Flows of India Using ARDL Approach

Dr.P.CHELLASAMY; ANU.K.M

Volume : VII, Issue : IV, April - 2017

Investigating the Relationship between Current Account Deficit and Capital Flows of India Using ARDL Approach

Dr. P. Chellasamy, Anu. K. M

Abstract :

This study analyzes the relationship between current account deficit and capital flows in India for a period from 2005Q1 to 2016Q2. Augmented Dickey Fuller (ADF) unit root test was employed to examine the stability of Current Account deficit (CA) and capital flows (CF) series data. It was reported that CA was integrated at I(1) and CF was integrated at I(0).Auto regressive distributed lag (ARDL) model was used to estimate the co–integration between the series. The study revealed that there exist unidirectional relationship from capital flows to current deficit hence it is suggested that capital flow liberalization policies could give way to a deterioration of current account balance.