Investigating the twin-deficit phenomenon among oil-exporting countries: Does oil really matter?

This study empirically investigates the existence of twin deficits—the impact of fiscal policy on the current account—among selected major oil-exporting countries. Given the huge effects of the oil proceeds on these economies, the study separates the effects of oil on the fiscal balance from its effect on the current account balance. The investigation took a further step by grouping these countries—based on their fiscal policy actions over the period of years under review—into pro-cyclical and counter-cyclical fiscal countries. In line with the existing literature, the impact of fiscal balance on the current account balance takes into consideration the contemporaneous effects brought about by exchange rate fluctuations, the growth in GDP, rate of openness and the growth in money supply. The models are estimated based on a panel of 31 oil-exporting countries over the period 1984–2013, using the two-stage least squares estimation techniques. The results from all countries estimations reveal the existence of twin-deficit in the total economy. In the non-oil economy, on the other hand, the evidence of twin-deficit disappears. This evidence is also reported in the counter-cyclical fiscal countries. Results from pro-cyclical fiscal countries indicated the total opposite, revealing the existence of twin-deficit in the non-oil economy, while this evidence does not occur in the total economy. The indisputable conclusion is that oil dominance continues to blur the existence of twin deficits among the oil-exporting countries.