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Two deficits and economic growth: Case of CEE countries in transition

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  • Gurgul, Henryk
  • Lach, Łukasz

Abstract

The main goal of this contribution was to provide evidence on the dynamic interdependencies between economic growth and budget and trade deficits in ten new EU members in transition in the last decade. It is worth to note that beside establishing directions of causal relationships this paper also derived some suggestions on signs of the dynamic dependencies analyzed. The outcomes of this paper confirmed that the budget deficits were significantly slowing down the GDP growth rates in case of new EU-members in transition. In addition, these deficits had negative impact on the convergence process of examined countries towards the highly developed European economies. The evidence supporting adverse causality was considerably weaker.The empirical results allow to claim that in the period under study there was a unidirectional negative Granger causality from budget deficits to trade deficits. Therefore, in case of CEE economies in transition the twin deficit hypothesis was not the case.

Suggested Citation

  • Gurgul, Henryk & Lach, Łukasz, 2012. "Two deficits and economic growth: Case of CEE countries in transition," MPRA Paper 52257, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:52257
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    Cited by:

    1. Şen, Hüseyin & Kaya, Ayşe, 2016. "Are the twin or triple deficits hypotheses applicable to post-communist countries?," BOFIT Discussion Papers 3/2016, Bank of Finland Institute for Emerging Economies (BOFIT).
    2. Noveski Martin, 2018. "Macroeconomic effects of the budget deficit in the Republic of Macedonia," Croatian Review of Economic, Business and Social Statistics, Sciendo, vol. 4(2), pages 5-14, November.

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    More about this item

    Keywords

    economic growth; twin deficits; CEE transition economies;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
    • E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

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