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On the Twin Deficits Hypothesis and the Import Propensity in Transition Countries

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  • Hubert Gabrisch

Abstract

This article uses co-integration and related techniques to test for a long-run causal relationship between the fiscal and external deficits of three post-transition countries in Central and Eastern Europe. In addition, an import propensity model is tested by applying OLS and GMM. All the results reject the Twin Deficits Hypothesis. Instead, the results demonstrate that specific transition factors such as a high import intensity of exports and net capital inflows affect the trade balance.

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File URL: http://www.iwh-halle.de/d/publik/disc/20-11.pdf
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Bibliographic Info

Paper provided by Halle Institute for Economic Research in its series IWH Discussion Papers with number 20.

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Date of creation: Jan 2012
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Handle: RePEc:iwh:dispap:20-11

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Keywords: twin deficits; import propensity; transition countries;

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  1. 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.
  2. 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.
  3. Ketenci, Natalya & Uz, Idil, 2010. "Determinants of current account in the EU: the relation between internal and external balances in the new members," MPRA Paper 27466, University Library of Munich, Germany.
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