Advanced Search
MyIDEAS: Login to save this article or follow this journal

An Empirical Investigation of Budget and Trade Deficits: The Case of Bangladesh

Contents:

Author Info

  • Asrafuzzaman

    (Department of Economics, Shahjalal University of Science and Technology, Sylhet-3114, Bangladesh)

  • Amit Roy

    (Graduate Student, Department of Economics, Shahjalal University of Science and Technology, Sylhet-3114, Bangladesh)

  • Sanat Das Gupta

    (Graduate Student, Department of Economics, Shahjalal University of Science and Technology, Sylhet-3114, Bangladesh)

Abstract

This study attempts to investigate the evidence of twin deficits hypothesis, that is, the simultaneous existence of fiscal and foreign trade account deficits in Bangladesh. In this regard this paper examines the causal relationship between budget deficit and trade deficit based on annual time series data from 1972-73 to 2011-12 fiscal year. Applying the VAR and Granger Causality after successfully running ADF and PP unit root test and cointegration rank test this paper reveals that budget deficit Granger cause trade deficit and vice versa but the relationship does not stand for the long-run dynamics. In fact, the long run relationship depends on overall macroeconomic environment and performances of other relevant variables. Policy implication is that Government should reduce budget deficit to improve the trade account balance.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.econjournals.com/index.php/ijefi/article/download/282/pdf
Download Restriction: no

File URL: http://www.econjournals.com/index.php/ijefi/article/view/282/pdf
Download Restriction: no

Bibliographic Info

Article provided by Econjournals in its journal International Journal of Economics and Financial Issues.

Volume (Year): 3 (2013)
Issue (Month): 3 ()
Pages: 570-579

as in new window
Handle: RePEc:eco:journ1:2013-03-2

Contact details of provider:
Web page: http://www.econjournals.com

Related research

Keywords: Twin deficits; Bangladesh; Budget deficit; Trade deficit; Granger causality; VAR;

Find related papers by JEL classification:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. William G. Dewald & Michael Ulan, 1990. "The Twin-Deficit Illusion," Cato Journal, Cato Journal, Cato Institute, Cato Journal, Cato Institute, vol. 9(3), pages 689-707, Winter.
  2. Sylvia KAUFMANN & Johann SCHARLER & Georg WINCKLER, 1999. "The Austrian current account deficit: Driven by twin deficits or by intertemporal expenditure allocation?," Vienna Economics Papers, University of Vienna, Department of Economics vie9903, University of Vienna, Department of Economics.
  3. Engle, Robert F & Granger, Clive W J, 1987. "Co-integration and Error Correction: Representation, Estimation, and Testing," Econometrica, Econometric Society, Econometric Society, vol. 55(2), pages 251-76, March.
  4. Kearney, Colm & Monadjemi, Mehdi, 1990. "Fiscal policy and current account performance: International evidence on the twin deficits," Journal of Macroeconomics, Elsevier, Elsevier, vol. 12(2), pages 197-219.
  5. Abell, John D., 1990. "Twin deficits during the 1980s: An empirical investigation," Journal of Macroeconomics, Elsevier, Elsevier, vol. 12(1), pages 81-96.
  6. Peter C.B. Phillips & Sam Ouliaris, 1987. "Asymptotic Properties of Residual Based Tests for Cointegration," Cowles Foundation Discussion Papers, Cowles Foundation for Research in Economics, Yale University 847R, Cowles Foundation for Research in Economics, Yale University, revised Jul 1988.
  7. Johansen, Soren, 1991. "Estimation and Hypothesis Testing of Cointegration Vectors in Gaussian Vector Autoregressive Models," Econometrica, Econometric Society, Econometric Society, vol. 59(6), pages 1551-80, November.
  8. Johansen, Soren & Juselius, Katarina, 1990. "Maximum Likelihood Estimation and Inference on Cointegration--With Applications to the Demand for Money," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, Department of Economics, University of Oxford, vol. 52(2), pages 169-210, May.
  9. M. Faizul Islam, 1998. "Brazil's twin deficits: An empirical examination," Atlantic Economic Journal, International Atlantic Economic Society, International Atlantic Economic Society, vol. 26(2), pages 121-128, June.
  10. Stephen M. Miller & Frank S. Russek, 1989. "Are The Twin Deficits Really Related?," Contemporary Economic Policy, Western Economic Association International, Western Economic Association International, vol. 7(4), pages 91-115, October.
  11. Granger, C. W. J., 1981. "Some properties of time series data and their use in econometric model specification," Journal of Econometrics, Elsevier, Elsevier, vol. 16(1), pages 121-130, May.
Full references (including those not matched with items on IDEAS)

Citations

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:eco:journ1:2013-03-2. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Ilhan Ozturk).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.