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Budget and Current Account Deficits in SEACEN Countries: Evidence Based on the Panel Approach

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Author Info
Ahmad Zubaidi Baharumshah (UPM)
Evan Lau (UNIMAS)

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Abstract

In this paper, the twin deficits hypothesis was examined using data of nine SEACEN countries. To compensate for the lack of time series observations, data was polled from the nine countries into one panel. The effects of interest rate and exchange rate in the causal chain between budget and current account deficits were stressed. At the empirical level, there is enough evidence to support the view that Asian budget deficit causes current account deficit directly as well as indirectly. From the policy perspective, the statistical analysis suggests that managing budget deficit offers scope for improvement in the current account deficit. However, this finding does not support the policy of manipulating the intermediate variables to reduce the twin deficits to a sustainable level since these variables appear to be endogenous in the system.

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Paper provided by EconWPA in its series International Finance with number 0504002.

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Date of creation: 01 Apr 2005
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Handle: RePEc:wpa:wuwpif:0504002

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Related research
Keywords: twin deficits;

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Find related papers by JEL classification:
F3 - International Economics - - International Finance
F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance

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References listed on IDEAS
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Carlos Marinheiro, 2006. "Egypt has presented important budget imbalances," GEMF Working Papers 2006-07, GEMF - Faculdade de Economia, Universidade de Coimbra. [Downloadable!]
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