Cross-country variation in patience, persistent current account imbalances and the external wealth of nations

Abstract

This paper is the first to utilize large-scale international surveys on economic preferences to examine the long-run relationships between patience, current accounts and external wealth. We find robust empirical evidence that countries with more patient individuals tend to run persistent current account surpluses, which in turn result in the accumulation of foreign assets. This theoretically plausible but empirically unexplored relationship holds true for euro area current account imbalances, global current account imbalances and net foreign asset positions worldwide. While the existing current account literature concentrates on proximate macroeconomic determinants, this paper’s extension of inferences from deep determinants (i.e., time preferences) to the distribution of external wealth of nations (i.e., net foreign asset positions) makes a unique contribution to the literature. Our finding showing that deep heterogeneities contribute to external imbalances suggests that the pattern of current account imbalances as well as the distribution of external wealth of nations might be very persistent.