Eduardo Cavallo, Barry Eichengreen, Ugo Panizza, 08 August 2016

In theory, a poor country with a low saving rate but good growth prospects can build up its capital stock by running a large and sustained current account deficit. This column asks whether this is feasible and productive in practice. A substantial number of countries in recent decades have been able to run large current account deficits for as long as ten years, but such episodes typically do not end happily. Foreign finance does not appear to be the cure for countries with low domestic savings.

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