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Assessing the Triple Deficit Hypothesis for Major South Asian Countries: A Panel Data Analysis

Author

Listed:
  • Shruti Shastri

    (Department of Economics, Banasthali Vidyapith, Vanasthali, Rajasthan, India)

  • A. K. Giri

    (Department of Economics and Finance, Birla Institute of Technology and Science, Pilani, Rajasthan, India,)

  • Geetilaxmi Mohapatra

    (Department of Economics and Finance, Birla Institute of Technology and Science, Pilani, Rajasthan, India)

Abstract

The paper examines the triple deficit hypothesis - An extension of the twin deficit hypothesis with inclusion of private saving gap for a panel of five South Asian countries, namely India, Pakistan, Bangladesh, Srilanka and Nepal for the period 1985-2015. The results based on first and second generation panel cointegration tests indicate long-run relationship among budget balance (BB), current account balance (CAB) and private saving gap. The long-run coefficients obtained using mean group (MG)-dynamic ordinary least square, MG-fully modified ordinary least squares and common correlated effect MG indicate positive impact of BB and private saving gap on CAB thus confirming triple deficit hypothesis. The causality analysis reveals feedback relationship between CAB and BB implying that improvement in CAB requires fiscal austerity but fiscal adjustment is not fully policy controlled and requires adjustment in current account. Further, the causation also runs from saving gap to CAB and BB implying that plugging the saving gap would help improve both current account and BB.

Suggested Citation

  • Shruti Shastri & A. K. Giri & Geetilaxmi Mohapatra, 2017. "Assessing the Triple Deficit Hypothesis for Major South Asian Countries: A Panel Data Analysis," International Journal of Economics and Financial Issues, Econjournals, vol. 7(4), pages 292-299.
    • Handle: RePEc:eco:journ1:2017-04-38
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    References listed on IDEAS

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    Cited by:

    1. Samson Nonso Okafor & Chukwunonso Ekesiobi & Ogonna Ifebi & Stephen Kelechi Dimnwobi & Simplice A. Asongu, 2022. "Testing the triple deficit hypothesis for sub‐Saharan Africa: Implications for the African Continental Free Trade Area," African Development Review, African Development Bank, vol. 34(1), pages 142-153, March.
    2. Rahman Olanrewaju Raji, 2019. "Testing the Validity of the Triple Deficit Hypothesis for Nigeria," Econometric Research in Finance, SGH Warsaw School of Economics, Collegium of Economic Analysis, vol. 4(2), pages 89-109, December.
    3. Engy Raouf, 2020. "A Non-Linear Autoreggresive Distributed Lag Analysis of the Triple Deficit Hypothesis in the Mena Region," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 10(8), pages 895-905, August.

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    More about this item

    Keywords

    Triple Deficit Hypothesis; South Asia; Panel Cointegration; Panel Causality; Group Mean-dynamic Ordinary Least Square; Group Mean-fully Modified Ordinary Least Squares; Common Correlated Effect Mean Group; Estimator;
    All these keywords.

    JEL classification:

    • E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • H62 - Public Economics - - National Budget, Deficit, and Debt - - - Deficit; Surplus

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