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On The Twin Deficits Hypothesis: Evidence From Turkey


  • Burcu KIRAN


This paper examines the long run relationship between trade deficit and budget deficit in Turkey in the context of fractional cointegration approach. This approach relaxes the assumption in the conventional cointegration analyses that the cointegrating residuals must be integrated of zero and allows it to take any real value. The empirical results of the annual data over the period from 1975 to 2009 show that there is little evidence for the presence of fractional cointegration relationship between trade deficit and budget deficit, hence, for the validity of twin deficits hypothesis in Turkey.

Suggested Citation

  • Burcu KIRAN, 2011. "On The Twin Deficits Hypothesis: Evidence From Turkey," Applied Econometrics and International Development, Euro-American Association of Economic Development, vol. 11(1).
  • Handle: RePEc:eaa:aeinde:v:11:y:2011:i:1_6

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    References listed on IDEAS

    1. Nickel, Christiane & Funke, Katja, 2006. "Does fiscal policy matter for the trade account? A panel cointegration study," Working Paper Series 620, European Central Bank.
    2. Bilgili, Faik & Bilgili, Emine, 1998. "Bütçe açığının cari işlemler üzerindeki etkileri: Teori ve uygulama
      [The effects of budget deficit on current account balance: Theory and empirical evidence]
      ," MPRA Paper 80866, University Library of Munich, Germany.
    3. Kwiatkowski, Denis & Phillips, Peter C. B. & Schmidt, Peter & Shin, Yongcheol, 1992. "Testing the null hypothesis of stationarity against the alternative of a unit root : How sure are we that economic time series have a unit root?," Journal of Econometrics, Elsevier, vol. 54(1-3), pages 159-178.
    4. P. S. Sephton, 2002. "Fractional cointegration: Monte Carlo estimates of critical values, with an application," Applied Financial Economics, Taylor & Francis Journals, vol. 12(5), pages 331-335.
    5. Lori Leachman & Bill Francis, 2002. "Twin Deficits: Apparition or Reality?," Applied Economics, Taylor & Francis Journals, vol. 34(9), pages 1121-1132.
    6. Stephen M. Miller & Frank S. Russek, 1989. "Are The Twin Deficits Really Related?," Contemporary Economic Policy, Western Economic Association International, vol. 7(4), pages 91-115, October.
    7. Enders, Walter & Lee, Bong-Soo, 1990. "Current Account and Budget Deficits: Twins or Distant Cousins?," The Review of Economics and Statistics, MIT Press, vol. 72(3), pages 373-381, August.
    8. Ahmad Zubaidi Baharumshah & Evan Lau & Ahmed M. Khalid, 2005. "Testing Twin Deficits Hypothesis: Using VARs and Variance Decomposition," International Finance 0504001, EconWPA.
    9. Anoruo, Emmanuel & Ramchander, Sanjay, 1998. "Current account and fiscal deficits: Evidence from five developing economies of Asia," Journal of Asian Economics, Elsevier, vol. 9(3), pages 487-501.
    10. Rosenswieg, Jeffrey A & Tallman, Ellis W, 1993. "Fiscal Policy and Trade Adjustment: Are the Deficits Really Twins?," Economic Inquiry, Western Economic Association International, vol. 31(4), pages 580-594, October.
    11. Granger, C. W. J., 1981. "Some properties of time series data and their use in econometric model specification," Journal of Econometrics, Elsevier, vol. 16(1), pages 121-130, May.
    12. Piersanti, Giovanni, 2000. "Current account dynamics and expected future budget deficits: some international evidence," Journal of International Money and Finance, Elsevier, vol. 19(2), pages 255-271, April.
    13. Ki-Ho Kim, 1995. "On the Long-Run Determinants of the U.S. Trade Balance: A Comment," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol. 17(3), pages 447-455, March.
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    Cited by:

    1. repec:kap:iaecre:v:19:y:2013:i:3:p:289-310 is not listed on IDEAS
    2. Francesco Forte & Cosimo Magazzino, 2013. "Twin Deficits in the European Countries," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 19(3), pages 289-310, August.

    More about this item


    C10; E60; F10;

    JEL classification:

    • C10 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - General
    • E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General
    • F10 - International Economics - - Trade - - - General


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