Current Account Deficit for Countries
I will use the example of Australia to illustrate my opinion.
Australia is a country that has had a current account deficit for over 50 years. Furthermore, forecasts on this current account deficit tend to show that if there is no increase of international competitiveness and decrease of reliance of overseas capital goods, the situation will keep on getting worse.
Nevertheless, if a multinational company wants to invest in a country that tends to have a current account deficit, it must bear in mind that one of the ways to decrease this deficit is to decrease imports, or to increase exports, in order to have a positive balance of trade.
Investing is a term that has different significations, and investing in a country such as Australia is a way of contributing to the invert of this economical phenomenon. If a MNC wants to open a subsidiary in Australia, if it succeeds in its financial goals, it will either work on a national scale, and contribute to the national economy, or it will export its goods, and not only contribute to the Australian economy, but also contribute to lowering the deficit.
Since governments only ask for this current account balance to be positive and thus represent a surplus, they are encourage MNCs to invest on their territory.
For sceptics, a last point is interesting to be introduced:
In the 80’s, an Australian economist named John Pitchford held a theory named the “Pitchford Thesis”, in which he believes that a current account deficit is not of matter if driven by the private sector. In a sense, his theory has met expectations since Australia has experienced economic growth from 1991 till today.
Author : Matthieu
Australia is a country that has had a current account deficit for over 50 years. Furthermore, forecasts on this current account deficit tend to show that if there is no increase of international competitiveness and decrease of reliance of overseas capital goods, the situation will keep on getting worse.
Nevertheless, if a multinational company wants to invest in a country that tends to have a current account deficit, it must bear in mind that one of the ways to decrease this deficit is to decrease imports, or to increase exports, in order to have a positive balance of trade.
Investing is a term that has different significations, and investing in a country such as Australia is a way of contributing to the invert of this economical phenomenon. If a MNC wants to open a subsidiary in Australia, if it succeeds in its financial goals, it will either work on a national scale, and contribute to the national economy, or it will export its goods, and not only contribute to the Australian economy, but also contribute to lowering the deficit.
Since governments only ask for this current account balance to be positive and thus represent a surplus, they are encourage MNCs to invest on their territory.
For sceptics, a last point is interesting to be introduced:
In the 80’s, an Australian economist named John Pitchford held a theory named the “Pitchford Thesis”, in which he believes that a current account deficit is not of matter if driven by the private sector. In a sense, his theory has met expectations since Australia has experienced economic growth from 1991 till today.
Author : Matthieu