IDEAS home Printed from https://ideas.repec.org/a/eee/jpolmo/v30y2008i6p1041-1056.html
   My bibliography  Save this article

Ricardian equivalence, twin deficits, and the Feldstein-Horioka puzzle in Egypt

Author

Listed:
  • Marinheiro, Carlos Fonseca

Abstract

Egypt has presented important budget imbalances. This paper tries to evaluate whether Egypt's public deficit has had any impact on current account imbalances, examining the validity of the twin-deficit hypothesis for Egypt. We conclude for the presence of a (weak) long-run relationship between the budget deficit and the current account deficit. Yet, we reject the twin-deficit hypothesis: we found evidence in favour of a reverse Granger-causality running from the external deficit to the budget deficit. Further, we conclude against the validity of full Ricardian equivalence in Egypt and present evidence in favour of a high degree of capital mobility.

Suggested Citation

  • Marinheiro, Carlos Fonseca, 2008. "Ricardian equivalence, twin deficits, and the Feldstein-Horioka puzzle in Egypt," Journal of Policy Modeling, Elsevier, vol. 30(6), pages 1041-1056.
    • Handle: RePEc:eee:jpolmo:v:30:y:2008:i:6:p:1041-1056
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0161-8938(07)00133-0
    Download Restriction: Full text for ScienceDirect subscribers only
    ---><---

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Eugene Kouassi & Mbodja Mougoué & Kern O. Kymn, 2004. "Causality tests of the relationship between the twin deficits," Empirical Economics, Springer, vol. 29(3), pages 503-525, September.
    2. Barro, Robert J, 1974. "Are Government Bonds Net Wealth?," Journal of Political Economy, University of Chicago Press, vol. 82(6), pages 1095-1117, Nov.-Dec..
    3. Edwards, Sebastian & Frankel, Jeffrey A. (ed.), 2002. "Preventing Currency Crises in Emerging Markets," National Bureau of Economic Research Books, University of Chicago Press, edition 1, number 9780226184944, December.
    4. Kwiatkowski, Denis & Phillips, Peter C. B. & Schmidt, Peter & Shin, Yongcheol, 1992. "Testing the null hypothesis of stationarity against the alternative of a unit root : How sure are we that economic time series have a unit root?," Journal of Econometrics, Elsevier, vol. 54(1-3), pages 159-178.
    5. Sebastian Edwards, 2002. "Does the Current Account Matter?," NBER Chapters, in: Preventing Currency Crises in Emerging Markets, pages 21-76, National Bureau of Economic Research, Inc.
    6. Abu-Bader, Suleiman & Abu-Qarn, Aamer S., 2003. "Government expenditures, military spending and economic growth: causality evidence from Egypt, Israel, and Syria," Journal of Policy Modeling, Elsevier, vol. 25(6-7), pages 567-583, September.
    7. Feldstein, Martin & Horioka, Charles, 1980. "Domestic Saving and International Capital Flows," Economic Journal, Royal Economic Society, vol. 90(358), pages 314-329, June.
    8. Barro, Robert J, 1989. "The Ricardian Approach to Budget Deficits," Journal of Economic Perspectives, American Economic Association, vol. 3(2), pages 37-54, Spring.
    9. B. Douglas Bernheim, 1987. "Ricardian Equivalence: An Evaluation of Theory and Evidence," NBER Chapters, in: NBER Macroeconomics Annual 1987, Volume 2, pages 263-316, National Bureau of Economic Research, Inc.
    10. Abu-Bader, Suleiman & Abu-Qarn, Aamer S., 2003. "Government expenditures, military spending and economic growth: causality evidence from Egypt, Israel, and Syria," Journal of Policy Modeling, Elsevier, vol. 25(6-7), pages 567-583, September.
    11. Mr. Arvind Subramanian, 1997. "The Egyptian Stabilization Experience: An Analytical Retrospective," IMF Working Papers 1997/105, International Monetary Fund.
    12. Mr. Jahangir Aziz & Mr. Francesco Caramazza, 1998. "Fixed or Flexible? Getting the Exchange Rate Right in the 1990s," IMF Economic Issues 1998/002, International Monetary Fund.
    13. International Monetary Fund, 2006. "Republic of Estonia: Staff Report for the 2006 Article IV Consultation," IMF Staff Country Reports 2006/418, International Monetary Fund.
    14. Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 231-254.
    15. International Monetary Fund, 2006. "Ireland: Staff Report for the 2006 Article IV Consultation," IMF Staff Country Reports 2006/293, International Monetary Fund.
    16. Normandin, Michel, 1999. "Budget deficit persistence and the twin deficits hypothesis," Journal of International Economics, Elsevier, vol. 49(1), pages 171-193, October.
    17. Baharumshah, Ahmad Zubaidi & Lau, Evan & Fountas, Stilianos, 2003. "On the sustainability of current account deficits: evidence from four ASEAN countries," Journal of Asian Economics, Elsevier, vol. 14(3), pages 465-487, June.
    18. Lawrence H. Summers, 1988. "Tax Policy and International Competitiveness," NBER Chapters, in: International Aspects of Fiscal Policies, pages 349-386, National Bureau of Economic Research, Inc.
    19. Peter C. B. Phillips & Bruce E. Hansen, 1990. "Statistical Inference in Instrumental Variables Regression with I(1) Processes," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 57(1), pages 99-125.
    20. International Monetary Fund, 2006. "Iceland: Staff Report for the 2006 Article IV Consultation," IMF Staff Country Reports 2006/296, International Monetary Fund.
    21. Thissen, Mark & Lensink, Robert, 2001. "Macroeconomic effects of a currency devaluation in Egypt: An analysis with a computable general equilibrium model with financial markets and forward-looking expectations," Journal of Policy Modeling, Elsevier, vol. 23(4), pages 411-419, May.
    22. International Monetary Fund, 2006. "Republic of Lithuania: Staff Report for the 2006 Article IV Consultation," IMF Staff Country Reports 2006/162, International Monetary Fund.
    23. Jahangir Aziz & Francesco Caramazza, 1998. "Fixed or Flexible? Getting the Exchange Rate Right in the 1990s," IMF Economic Issues 13, International Monetary Fund.
    24. Jacob A. Frenkel, 1988. "International Aspects of Fiscal Policies," NBER Books, National Bureau of Economic Research, Inc, number fren88-1, March.
    25. Reinhart, Carmen M. & Dunaway, Steven, "undated". "Dealing with Capital Inflows Are There Any Lessons?," WIDER Working Papers 295321, United Nations University, World Institute for Development Economic Research (UNU-WIDER).
    26. Ahmad Zubaidi Baharumshah & Evan Lau, 2005. "Budget and Current Account Deficits in SEACEN Countries: Evidence Based on the Panel Approach," International Finance 0504002, University Library of Munich, Germany.
    27. Osterwald-Lenum, Michael, 1992. "A Note with Quantiles of the Asymptotic Distribution of the Maximum Likelihood Cointegration Rank Test Statistics," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 54(3), pages 461-472, August.
    28. Seater, John J, 1993. "Ricardian Equivalence," Journal of Economic Literature, American Economic Association, vol. 31(1), pages 142-190, March.
    29. International Monetary Fund, 2006. "Republic of Estonia; Staff Report for the 2006 Article IV Consultation," IMF Staff Country Reports 06/418, International Monetary Fund.
    30. Mohammed Omran, 2002. "Testing for a Significant Change in the Egyptian Economy Under the Economic Reform Programme Era," WIDER Working Paper Series DP2002-59, World Institute for Development Economic Research (UNU-WIDER).
    31. Hakkio, Craig S & Rush, Mark, 1991. "Is the Budget Deficit "Too Large?"," Economic Inquiry, Western Economic Association International, vol. 29(3), pages 429-445, July.
    32. Jarko Fidrmuc, 2003. "The Feldstein–Horioka Puzzle and Twin Deficits in Selected Countries," Economic Change and Restructuring, Springer, vol. 36(2), pages 135-152, June.
    33. International Monetary Fund, 2006. "Romania: Staff Report for the 2006 Article IV Consultation," IMF Staff Country Reports 2006/168, International Monetary Fund.
    34. Sebastian Edwards & Jeffrey A. Frankel, 2002. "Preventing Currency Crises in Emerging Markets," NBER Books, National Bureau of Economic Research, Inc, number edwa02-2, March.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Ahmad Baharumshah & Evan Lau & Ahmed Khalid, 2006. "Testing Twin Deficits Hypothesis using VARs and Variance Decomposition," Journal of the Asia Pacific Economy, Taylor & Francis Journals, vol. 11(3), pages 331-354.
    2. Xie, Zixiong & Chen, Shyh-Wei, 2014. "Untangling the causal relationship between government budget and current account deficits in OECD countries: Evidence from bootstrap panel Granger causality," International Review of Economics & Finance, Elsevier, vol. 31(C), pages 95-104.
    3. Farzane Bagheri & Fatemeh Daroghe Hazrati, 2012. "Twin Deficits and Feldstein-Horioka Puzzle in the Case Iran," Journal of Social and Development Sciences, AMH International, vol. 3(5), pages 167-171.
    4. Puah, Chin-Hong & Lau, Evan & Tan, Kim Lee, 2006. "Budget-current account deficits nexus in Malaysia," MPRA Paper 37677, University Library of Munich, Germany.
    5. António Afonso & Philemon Kwame Opoku, 2018. "The Relationship between Fiscal and Current Account Imbalances in OECD Economies," Working Papers REM 2018/61, ISEG - Lisbon School of Economics and Management, REM, Universidade de Lisboa.
    6. Francesco Forte & Cosimo Magazzino, 2015. "Ricardian equivalence and twin deficits hypotheses in the euro area," Journal of Social and Economic Development, Springer;Institute for Social and Economic Change, vol. 17(2), pages 148-166, October.
    7. Robert M. Stern, 2011. "Trade in Financial Services—Has the IMF been Involved Constructively?," Margin: The Journal of Applied Economic Research, National Council of Applied Economic Research, vol. 5(1), pages 65-92, February.
    8. Moreno, Ramon, 1997. "Saving-investment dynamics and capital mobility in the US and Japan," Journal of International Money and Finance, Elsevier, vol. 16(6), pages 837-863, December.
    9. Al-Mashat Rania & Billmeier Andreas, 2008. "The Monetary Transmission Mechanism in Egypt," Review of Middle East Economics and Finance, De Gruyter, vol. 4(3), pages 32-82, September.
    10. Farzane Bagheri & Salma Keshtkaran, 2012. "Testing for Twin Deficits and Ricardian Equivalence Hypotheses: Evidence from Iran," Journal of Social and Development Sciences, AMH International, vol. 3(3), pages 77-84.
    11. Tommaso Nannicini & Andreas Billmeier, 2011. "Economies in Transition: How Important Is Trade Openness for Growth?," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 73(3), pages 287-314, June.
    12. Robert M Stern, 2009. "Trade in Financial Services--Has the IMF Been Involved Constructively?," Working Papers 587, Research Seminar in International Economics, University of Michigan.
    13. World Bank, 2010. "Baltic States and Poland Trade Logistics Review," World Bank Publications - Reports 22292, The World Bank Group.
    14. Kalou, Sofia & Paleologou, Suzanna-Maria, 2012. "The twin deficits hypothesis: Revisiting an EMU country," Journal of Policy Modeling, Elsevier, vol. 34(2), pages 230-241.
    15. Daniel Levy, 1995. "Investment-saving comovement under endogenous fiscal policy," Open Economies Review, Springer, vol. 6(3), pages 237-254, July.
    16. Eregha, Perekunah B. & Aworinde, Olalekan B. & Vo, Xuan Vinh, 2022. "Modeling twin deficit hypothesis with oil price volatility in African oil-producing countries," Resources Policy, Elsevier, vol. 75(C).
    17. Brunila, Anne, 1996. "Fiscal policy and private consumption : Saving decisions : Evidence from Finland," Research Discussion Papers 28/1996, Bank of Finland.
    18. Gianluigi Giorgioni & Ken Holden, 2003. "Ricardian equivalence, expansionary fiscal contraction and the stock market: a VECM approach," Applied Economics, Taylor & Francis Journals, vol. 35(12), pages 1435-1443.
    19. Jos Jansen, W, 1996. "Estimating saving-investment correlations: evidence for OECD countries based on an error correction model," Journal of International Money and Finance, Elsevier, vol. 15(5), pages 749-781, October.
    20. Jalal Siddiki, 2010. "The Ricardian equivalence hypothesis: evidence from Bangladesh," Applied Economics, Taylor & Francis Journals, vol. 42(11), pages 1419-1435.

    More about this item

    Keywords

    Twin deficits Current account deficit Feldstein-Horioka puzzle Egypt Fiscal policy;

    JEL classification:

    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H6 - Public Economics - - National Budget, Deficit, and Debt
    • O55 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Africa

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:jpolmo:v:30:y:2008:i:6:p:1041-1056. See general information about how to correct material in RePEc.

    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 CitEc recognized a bibliographic reference but did not link an item in RePEc 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 RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/inca/505735 .

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

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.