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Ricardian Equivalence, Twin Deficits, and the Feldstein-Horioka puzzle in Egypt

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  • Carlos Marinheiro

    ()
    (GEMF and Faculdade de Economia, Universidade de Coimbra)

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.

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Bibliographic Info

Paper provided by GEMF - Faculdade de Economia, Universidade de Coimbra in its series GEMF Working Papers with number 2006-07.

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Length: 39 pages
Date of creation: 2006
Date of revision:
Publication status: Published in Journal of Policy Modeling 30(6): 1041-1056, 2008.
Handle: RePEc:gmf:wpaper:2006-07

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Keywords: Twin deficits; current account deficit; Feldstein-Horioka puzzle; Egypt; Fiscal policy;

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References

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  1. Seater, John J, 1993. "Ricardian Equivalence," Journal of Economic Literature, American Economic Association, vol. 31(1), pages 142-90, March.
  2. Martin Feldstein & Charles Horioka, 1979. "Domestic Savings and International Capital Flows," NBER Working Papers 0310, National Bureau of Economic Research, Inc.
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  12. Omran, Mohammed, 2002. "Testing for a Significant Change in the Egyptian Economy under the Economic Reform Programme Era," Working Paper Series UNU-WIDER Research Paper , World Institute for Development Economic Research (UNU-WIDER).
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Cited by:
  1. Evan Lau & Tuck Cheong Tang, 2009. "Twin deficits in Cambodia: Are there Reasons for Concern? An Empirical Study," Development Research Unit Working Paper Series 11-09, Monash University, Department of Economics.
  2. Katrakilidis Constantinos & Trachanas Emmanouil, 2011. "Has the Accession of Greece in the EU Influenced the Dynamics of the Country’s “Twin Deficits”? An Empirical Investigation," European Research Studies Journal, European Research Studies Journal, vol. 0(1), pages 45-54.
  3. Aristovnik, Aleksander & Djurić, Sandra, 2010. "Twin deficits and the Feldstein-Horioka puzzle: a comparison of the EU member states and candidate countries," MPRA Paper 24149, University Library of Munich, Germany.
  4. Piotr Misztal, 2011. "The Feldstein-Horioka Hypothesis in Countries with Varied Levels of Economic Development," Contemporary Economics, University of Finance and Management in Warsaw, vol. 5(2), June.
  5. Ferda, HALICIOGLU & Kasim, EREN, 2013. "Testing Twin Deficits and Saving-Investment Nexus in Turkey," MPRA Paper 50098, University Library of Munich, Germany.
  6. Tosun, M. Umur & Iyidogan, Pelin Varol & Telatar, Erdinç, 2014. "The Twin Deficits in Selected Central and Eastern European Economies: Bounds Testing Approach with Causality Analysis," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(2), pages 141-160, June.
  7. El-Baz, Osama, 2014. "Empirical Investigation of the Twin Deficits Hypothesis: The Egyptian Case (1990-2012)," MPRA Paper 53428, University Library of Munich, Germany.
  8. Misztal, Piotr, 2012. "The link between government budget and current account in the Baltic countries," MPRA Paper 40784, University Library of Munich, Germany.
  9. 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.
  10. Algieri, Bernardina, 2013. "An empirical analysis of the nexus between external balance and government budget balance: The case of the GIIPS countries," Economic Systems, Elsevier, vol. 37(2), pages 233-253.
  11. Evan Lau & Tuck Cheong Tang, 2009. "Twin deficits in Cambodia: An Empirical Study," Economics Bulletin, AccessEcon, vol. 29(4), pages 2783-2794.
  12. Hubert Gabrisch, 2012. "On the Twin Deficits Hypothesis and the Import Propensity in Transition Countries," IWH Discussion Papers 20, Halle Institute for Economic Research.
  13. 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.
  14. E Lau & S Abu Mansor & C-H Puah, 2010. "Revival of the Twin Deficits in Asian Crisis-affected Countries," Economic Issues Journal Articles, Economic Issues, vol. 15(1), pages 29-54, March.

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