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Twin Deficits Revisited: The Role of Fiscal Institutions in Pakistan

Author

Listed:
  • Sana Waheed

    (National University of Modern Languages, Islamabad, Pakistan.)

  • Muhammad Shahid Akram

    (Department of Economics and Development Studies,Federal University Dutsin-Ma, Katsina –State, Nigeria.)

Abstract

The economy of Pakistan is facing the problem of the persistent current account and the budget deficit in the past many years. This study addresses the important question of whether the budget deficit affects the current account components of the balance of payments, creating imbalances therein as well. The main objective of this research is to investigate the association between the budget and the current account deficit in Pakistan. The study has taken data from the period 1980-2021. Johansen’s cointegration approach has been applied to find the long-run association and the results imply a positive and considerable long-run association between budget deficit and current account deficit. The Vector Error Correction Model (VECM) specifies the convergence or deviation of the market in the short run to the long run. The finding shows that there is a long-run connection between the budget and the current account deficit. The study suggests that government should focus on a sound budgeting policy and focus to make exports more competitive in the foreign market.

Suggested Citation

  • Sana Waheed & Muhammad Shahid Akram, 2023. "Twin Deficits Revisited: The Role of Fiscal Institutions in Pakistan," Journal of Economic Sciences, Federal Urdu University Islamabad, Department of Economics, vol. 2(1), pages 69-78, June.
    • Handle: RePEc:azm:journl:v:2:y:2023:i:1:p:69-78
    DOI: 10.55603/jes.v2i1.a6
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    More about this item

    Keywords

    Current Account Deficit; Budget Deficit; Ricardian Equivalence; Keynesian Hypothesis;
    All these keywords.

    JEL classification:

    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • H61 - Public Economics - - National Budget, Deficit, and Debt - - - Budget; Budget Systems
    • O23 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Fiscal and Monetary Policy in Development
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory

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