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Twin Deficits Hypothesis in SEACEN Countries: A Panel Data Analysis of Relationships between Public Budget and Current Account Deficits

Author

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  • Lau, E.
  • Baharumshah, A. Z.

Abstract

In this paper, the twin deficits hypothesis was examined using the panel data of nine SEACEN countries. Empirical results provide evidence to support the view that Asian budget deficit causes current account deficit directly as well as indirectly. From policy perspectives, 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 .

Suggested Citation

  • Lau, E. & Baharumshah, A. Z., 2006. "Twin Deficits Hypothesis in SEACEN Countries: A Panel Data Analysis of Relationships between Public Budget and Current Account Deficits," Applied Econometrics and International Development, Euro-American Association of Economic Development, vol. 6(2).
  • Handle: RePEc:eaa:aeinde:v:6:y:2006:i:2_15
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Algieri, Bernardina, 2013. "An empirical analysis of the nexus between external balance and government budget balance: The case of the GIIPS countries," Economic Systems, Elsevier, vol. 37(2), pages 233-253.
    2. Ilir MITEZA, 2012. "Fiscal Deficits, Current Deficits and Investment: A Panel Causality Framework of 20 OECD countries," Applied Econometrics and International Development, Euro-American Association of Economic Development, vol. 12(1).
    3. Misztal, Piotr, 2012. "The link between government budget and current account in the Baltic countries," MPRA Paper 40784, University Library of Munich, Germany.

    More about this item

    Keywords

    Twin Deficits; Vicious or Virtuous Circle; Panel Analysis; SEACEN Countries;

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • H60 - Public Economics - - National Budget, Deficit, and Debt - - - General
    • H62 - Public Economics - - National Budget, Deficit, and Debt - - - Deficit; Surplus
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements

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