Financing the Current Account Deficit through Foreign Direct Investments versus External Loans

• Main Author: Camelia Milea
• Format: Article
• Language: English
• Published: Danubius University 2019-12-01
• Series: Acta Universitatis Danubius: Oeconomica
• Subjects: positive and negative effects; disequilibrium; microeconomic and macroeconomic level; current account deficit funding
• Online Access: http://journals.univ-danubius.ro/index.php/oeconomica/article/view/5966/5351

The purpose of the article is to compare the financing of the current account deficit by foreign direct investments and by external loans, presenting the advantages and disadvantages of each type of financing. The analysis shows that both foreign direct investments and external loans may have positive and negative effects on the economy of the host country. In addition, some advantages of foreign direct investments have disappeared in recent years (eg stability has been partly replaced by volatility). In the article, the author also presents the characteristics of current account deficit financing in Romania during the period 2006-2018. Concerning the foreign debt, it is noticed that in Romania there has been a replacement of institutional creditors with private creditors, which we consider to be a negative evolution of the situation of the Romanian economy from the point of view of the reimbursement effort and the sustainability. The research methods used consist in comparative analysis in time, qualitative and quantitative evaluations, interpretations and correlations.