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The effects of intercompany lending on the current account balances of selected economies in the Western Balkans
Ivana Đurović* 
Article | Year: 2017 | Pages: 421 - 441 | Volume: 41 | Issue: 4 Received: June 1, 2017 | Accepted: October 31, 2017 | Published online: December 11, 2017
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FULL ARTICLE
FIGURES & DATA
REFERENCES
CROSSMARK POLICY
METRICS
LICENCING
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Country | Year | Country | Year | Country | Year | Albaniaa | 2007 | Hungary | 2002 | Polanda | 2004 | Bosnia and Herzegovinaa | 2007 | Kosovoa | 2006 | Romania | 2002 | Bulgariaa | 2007 | Latvia | 2002 | Serbiaa | 2007 | Croatia | 2002 | Lithuaniaa | 2004 | Slovakiaa | 2004 | Czech Republic | 2002 | Macedonia | 2002 | Slovenia | 2002 | Estonia | 2002 | Montenegroa | 2010 | | |
Country | ICL | p-value | Bosnia and Herzegovina | -1.868 | 0.022** | Croatia | -0.802 | 0.002*** | Kosovo | 3.837 | 0.003*** | Macedonia | -2.818 | 0.000*** | Serbia | -3.488 | 0.008*** | Slovenia | -0.650 | 0.004*** |
** Significance at 5% level, *** significance at 1% level.
Variable | B&H | Croatia | Kosovo | Macedonia | Serbia | Slovenia | ICL | -0.482 | -0.270 | 1.236 | -0.890 | -0.688 | -0.154 | CAB_lag | 0.174 | 0.301 | -0.081 | 0.519 | | 0.367 | EI | -0.879 | -0.019 | -0.800 | -0.375 | 0.202 | -0.105 | Oil | 0.597 | 0.231 | -0.203 | -0.151 | 0.282 | 0.259 | Open | | 0.099 | -0.033 | 0.327 | | 0.257 | GDP_gr | 0.088 | -0.542 | -0.664 | 0.717 | -0.187 | -0.152 | Unem | 0.369 | 0.289 | -0.031 | -0.039 | 0.495 | 0.281 | F.bal | -0.151 | 0.119 | 0.331 | | 0.451 | 0.002 | Vix | -0.233 | 0.127 | -0.405 | -0.916 | -0.485 | |
Bolded figures indicate the strongest effect.
Coefficients | Without trend dummy | With trend dummy | Estimate | p-value | Estimate | p-value | ICL | -0.372 | 0.0291** | -0.368 | 0.0306** | EI | -0.012 | 0.8576 | -0.011 | 0.8787 | Oil | 0.665 | 0.0044*** | 0.634 | 0.0047*** | Open | 0.186 | 0.0000*** | 0.176 | 0.0000*** | GDP_gr | -0.487 | 0.0000*** | -0.469 | 0.0000*** | Unem | 0.249 | 0.0005*** | 0.253 | 0.0007*** | F.bal | 0.130 | 0.3883 | 0.132 | 0.3764 | VIX | -0.008 | 0.3651 | -0.008 | 0.3483 | Dummy trend | | | 0.0004 | 0.7613 |
** Significance at 5% level, *** significance at 1% level.
Variable | Expected sign | Source | Lagged values of the CAB to GDP ratio(CAB_lag) | + | Vienna Institute for International Economic Studies (WIIW) | Oil balance to GDP ratio (Oil) | + | Eurostat, International Trade in Mineral fuels, lubricants and related materials (SITC Rev. 4) served as a proxy. | Trade Openness (Open) | Ambiguous | World Bank | Macroeconomic uncertainty (Vix) | Ambiguous | Federal Reserve Bank of St. Louis, CBOE Volatility Index, % change from a year ago, annual, not seasonally adjusted. | General Government Budget to GDP ratio (F.bal) | + | WIIW | GDP growth (GDP_gr) | - | WIIW | Unemployment rate (Unem) | Ambiguous | WIIW | Foreign Direct Investments: Intercompany lending (ICL) Equity investment (EI) | Ambiguous | International Monetary Fund |
Variables | B&H | Croatia | Kosovo | Macedonia | Montenegro | Serbia | Slovenia | KPSS test results | CAB | 0.392* | 0.440* | 0.107 | 0.306 | 0.326 | 0.416 | 0.729** | | ICL | 0.390* | 0.230 | 0.302 | 0.185 | 0.144 | 0.347* | 0.131 | | EI | 0.251 | 0.282 | 0.332 | 0.223 | | 0.205 | 0.348* | | Oil | 0.211 | 0.137 | 0.314 | 0.175 | 0.287 | 0.407 | 0.148 | | Open | 0.314 | 0.363* | 0.231 | 0.389* | 0.089 | 0.698** | 0.391* | | GDP_gr | 0.153 | 0.260 | 0.306 | 0.144 | 1.235*** | 0.186 | 0.239 | | Unem | 0.135 | 0.292 | 0.261 | 0.560** | 0.514** | 0.196 | 0.382* | | F.bal | 0.144 | 0.124 | 0.349* | 0.226 | 0.253 | 0.165 | 0.267 | | Vix | 0.085 | 0.050 | 0.097 | 0.050 | | 0.085 | 0.050 | |
Variable | B&H | Croatia | Kosovo | Macedonia | Montenegro | Serbia | Slovenia | Model Averaging Coefficients | Coeff. | p-value | Coeff. | p-value | Coeff. | p-value | Coeff. | p-value | Coeff. | p-value | Coeff. | p-value | Coeff. | p-value | Intercept | -0.147 | 0.020 | -0.062 | 0.000 | -0.056 | 0.003 | -0.087 | 0.000 | | | -0.075 | 0.008 | -0.077 | 0.000 | ICL | -1.868 | 0.022 | -0.802 | 0.002 | 3.837 | 0.003 | -2.818 | 0.000 | 0.421 | 0.124* | -3.488 | 0.008 | -0.650 | 0.004 | CAB_lag | 0.134 | 0.011 | 0.322 | 0.000 | -0.082 | 0.013 | 0.517 | 0.000 | -0.394 | 0.016 | | | 0.412 | 0.000 | EI | -0.759 | 0.010 | -0.009 | 0.000 | -0.995 | 0.004 | -0.688 | 0.000 | | | 0.566 | 0.011 | -0.292 | 0.000 | Oil | 0.619 | 0.014 | 1.036 | 0.000 | -0.378 | 0.015 | -0.277 | 0.001 | 0.576 | 0.024 | 1.101 | 0.006 | 0.665 | 0.000 | Open | | | 0.067 | 0.000 | -0.021 | 0.003 | 0.075 | 0.000 | -0.179 | 0.024 | | | 0.060 | 0.000 | GDP_gr | 0.092 | 0.060 | -0.624 | 0.000 | -0.962 | 0.010 | 1.284 | 0.001 | -0.191 | 0.072 | -0.380 | 0.011 | -0.156 | 0.001 | Unem | 0.561 | 0.020 | 0.428 | 0.000 | -0.007 | 0.014 | -0.034 | 0.000 | -0.183 | 0.075 | 0.867 | 0.008 | 0.617 | 0.000 | F.bal | -0.266 | 0.011 | 0.284 | 0.025 | 0.351 | 0.003 | 0.000 | | -0.305 | 0.079 | 1.443 | 0.014 | 0.002 | 0.002 | Vix | -0.015 | 0.021 | 0.015 | 0.026 | -0.029 | 0.007 | -0.092 | 0.001 | | | -0.067 | 0.004 | | |
Figure 1The share of ICL in the total FDI, inflow in bn USD DISPLAY Figure
Table 1Starting year of the available dataset DISPLAY Table
Table 2Jackknife model averaging, ICL coefficients, by country DISPLAY Table
Table 3Jackknife model averaging, standardised coefficients, by country DISPLAY Table
Table 4Panel regression results, with and without trend dummy DISPLAY Table
Table A1Variable description DISPLAY Table
Table A2Jackknife model averaging, unit root tests results DISPLAY Table
Table A3Coefficient estimates obtained by the Jackknife model averaging approach DISPLAY Table
Figure A1Other investments and intercompany lending, liabilities, % of GDP DISPLAY Figure
Figure A2The structure of FDI, inflow, in bn USD DISPLAY Figure
Figure A3The contribution of ICL to the CAB, two and three-year averages, % of GDP DISPLAY Figure
* The author would like to thank two anonymous referees for their valuable comments and suggestions. This paper is based on the master’s thesis “The Intercompany Lending Effects on the Current Account Balance: Case of Former Yugoslav Republics”, defended in June 2017 at the Central European University in Budapest, under the mentorship of Professor Lajos Bokros, PhD.
The article was judged the best paper in the student category in the annual competition for the Prof. Dr. Marijan Hanžeković Prize for 2017.
1 Description of the model is taken from the Urosevic, Nedeljkovic and Zildzovic (  2012)
2 In Croatia in 2015, debt-for-equity swaps prevented even larger decline of total FDI since EI plunged due to value adjustments and negative reinvestment of earnings (EBL News, 2016).
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December, 2017
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