The Impact of Savings and Investment Differentials On Current Account Balance

Large trade gap between exports and imports, calls for policy measures to address such disparities among trading partners.  But, when current account deficits occurs, it reflects that there is a difference between savings and investment.  This paper critically evaluates the short and long run impact of savings and investment disparity on the current account balance in selected African Countries.  It is found that maintaining current account balance depends on whether it is the savings or investment that adjusts to its imbalance. A large current account deficit must be followed by either higher national savings or lower investment.  The inflow of foreign capital could offset savings and investment differentials, in the short run.  However, current account balance is achieved thru changes in investment in the long-run.