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On The Twin Deficits Hypothesis: Evidence From Turkey

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  • Burcu KIRAN
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    Abstract

    This paper examines the long run relationship between trade deficit and budget deficit in Turkey in the context of fractional cointegration approach. This approach relaxes the assumption in the conventional cointegration analyses that the cointegrating residuals must be integrated of zero and allows it to take any real value. The empirical results of the annual data over the period from 1975 to 2009 show that there is little evidence for the presence of fractional cointegration relationship between trade deficit and budget deficit, hence, for the validity of twin deficits hypothesis in Turkey.

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    Bibliographic Info

    Article provided by Euro-American Association of Economic Development in its journal Applied Econometrics and International Development.

    Volume (Year): 11 (2011)
    Issue (Month): 1 ()
    Pages:

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    Handle: RePEc:eaa:aeinde:v:11:y:2011:i:1_6

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    Related research

    Keywords: C10; E60; F10;

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    References

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    1. Piersanti, Giovanni, 2000. "Current account dynamics and expected future budget deficits: some international evidence," Journal of International Money and Finance, Elsevier, vol. 19(2), pages 255-271, April.
    2. Kwiatkowski, D. & Phillips, P.C.B. & Schmidt, P., 1990. "Testing the Null Hypothesis of Stationarity Against the Alternative of Unit Root : How Sure are we that Economic Time Series have a Unit Root?," Papers 8905, Michigan State - Econometrics and Economic Theory.
    3. Christiane Nickel & Katja Funke, 2006. "Does Fiscal Policy Matter for the Trade Account? A Panel Cointegration Study," IMF Working Papers 06/147, International Monetary Fund.
    4. P. S. Sephton, 2002. "Fractional cointegration: Monte Carlo estimates of critical values, with an application," Applied Financial Economics, Taylor & Francis Journals, vol. 12(5), pages 331-335.
    5. Stephen M. Miller & Frank S. Russek, 1989. "Are The Twin Deficits Really Related?," Contemporary Economic Policy, Western Economic Association International, vol. 7(4), pages 91-115, October.
    6. Anoruo, Emmanuel & Ramchander, Sanjay, 1998. "Current account and fiscal deficits: Evidence from five developing economies of Asia," Journal of Asian Economics, Elsevier, vol. 9(3), pages 487-501.
    7. Funke, Katja & Nickel, Christiane, 2006. "Does fiscal policy matter for the trade account? A panel cointegration study," Working Paper Series 0620, European Central Bank.
    8. Cheung, Yin-Wong & Lai, Kon S, 1993. "A Fractional Cointegration Analysis of Purchasing Power Parity," Journal of Business & Economic Statistics, American Statistical Association, vol. 11(1), pages 103-12, January.
    9. Lori Leachman & Bill Francis, 2002. "Twin Deficits: Apparition or Reality?," Applied Economics, Taylor & Francis Journals, vol. 34(9), pages 1121-1132.
    10. Rosenswieg, Jeffrey A & Tallman, Ellis W, 1993. "Fiscal Policy and Trade Adjustment: Are the Deficits Really Twins?," Economic Inquiry, Western Economic Association International, vol. 31(4), pages 580-94, October.
    11. Granger, C. W. J., 1981. "Some properties of time series data and their use in econometric model specification," Journal of Econometrics, Elsevier, vol. 16(1), pages 121-130, May.
    12. Enders, Walter & Lee, Bong-Soo, 1990. "Current Account and Budget Deficits: Twins or Distant Cousins?," The Review of Economics and Statistics, MIT Press, vol. 72(3), pages 373-81, August.
    13. Ki-Ho Kim, 1995. "On the Long-Run Determinants of the U.S. Trade Balance: A Comment," Journal of Post Keynesian Economics, M.E. Sharpe, Inc., vol. 17(3), pages 447-455, April.
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    Cited by:
    1. Francesco Forte & Cosimo Magazzino, 2013. "Twin Deficits in the European Countries," International Advances in Economic Research, Springer, vol. 19(3), pages 289-310, August.

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