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Has the Accession of Greece in the EU Influenced the Dynamics of the Country’s “Twin Deficits”? An Empirical Investigation

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  • Katrakilidis Constantinos
  • Trachanas Emmanouil

Abstract

This paper investigates the existence of possible causal linkages between the internal and external imbalances of the Greek economy, over the period 1960-2007, as well as the directions of the detected causal effects. Actually, it tests empirically the validity and rationale of the “twin deficits” hypothesis, taking into consideration the impact of the accession of Greece in the European Economic Community in 1981, which constitutes a great institutional change. By means of the ARDL cointegration methodology, error-correction modeling and Granger causality, we find evidence in favor of the “twin deficits hypothesis” for the Greek case over the pre-accession period (1960-1980), with causality running from the budget deficit to the trade deficit. However, over the post-accession period (1981-2007) the causal relationship is reversed, indicating changes in the linking mechanism of the two deficits and providing useful inferences for the national economic policy.

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Bibliographic Info

Article provided by European Research Studies Journal in its journal European Research Studies Journal.

Volume (Year): XIV (2011)
Issue (Month): 1 ()
Pages: 45-54

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Handle: RePEc:ers:journl:v:xiv:y:2011:i:1:p:45-54

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Web page: http://www.ersj.eu/

Related research

Keywords: Budget and Trade Deficits; Twin Deficits Hypothesis; Co-integration; Greek Economy (1960-2007);

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  1. Normandin, Michel, 1999. "Budget deficit persistence and the twin deficits hypothesis," Journal of International Economics, Elsevier, vol. 49(1), pages 171-193, October.
  2. Peter Romilly & Haiyan Song & Xiaming Liu, 2001. "Car ownership and use in Britain: a comparison of the empirical results of alternative cointegration estimation methods and forecasts," Applied Economics, Taylor & Francis Journals, vol. 33(14), pages 1803-1818.
  3. 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.
  4. 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.
  5. Panagiotis Pantelidis & Emmanouil Trachanas & Athanasios L. Athanasenas & Constantinos Katrakilidis, 2009. "On the Dynamics of the Greek Twin Deficits: Empirical evidence over the period 1960 – 2007," International Journal of Economic Sciences and Applied Research (IJESAR), Technological Educational Institute (TEI) of Kavala, Greece, vol. 2(2), pages 9-32, December.
  6. George Vamvoukas, 1999. "The twin deficits phenomenon: evidence from Greece," Applied Economics, Taylor & Francis Journals, vol. 31(9), pages 1093-1100.
  7. Granger, C W J, 1969. "Investigating Causal Relations by Econometric Models and Cross-Spectral Methods," Econometrica, Econometric Society, vol. 37(3), pages 424-38, July.
  8. Salvatore, Dominick, 2006. "Twin deficits in the G-7 countries and global structural imbalances," Journal of Policy Modeling, Elsevier, vol. 28(6), pages 701-712, September.
  9. 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.
  10. G. Vamvoukas, 1997. "Have large budget deficits caused increasing trade deficits? Evidence from a developing country," Atlantic Economic Journal, International Atlantic Economic Society, vol. 25(1), pages 80-90, March.
  11. Akaike, Hirotugu, 1981. "Likelihood of a model and information criteria," Journal of Econometrics, Elsevier, vol. 16(1), pages 3-14, May.
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