IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Log in (now much improved!) to save this article

External and budget deficits in some developing countries

  • Chihi, Foued
  • Normandin, Michel

This paper documents and explains the positive comovement between the external and budget deficits of developing countries for which post-1960 time-series data are available. First, the estimates indicate that the empirical covariance between these deficits is always positive and is statistically significant for many cases. Second, the empirical covariance is close to that predicted from a tractable small open-economy, overlapping-generation model with heterogeneous goods capturing the joint behavior of the external and budget deficits. Also, the predicted covariance is induced by shocks which are closely related to internal conditions such as domestic resources and fiscal policies, and to a much lesser extent to external conditions such as the world interest rate, real exchange rate, and terms of trade.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.sciencedirect.com/science/article/pii/S0261560612000617
Download Restriction: Full text for ScienceDirect subscribers only

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Article provided by Elsevier in its journal Journal of International Money and Finance.

Volume (Year): 32 (2013)
Issue (Month): C ()
Pages: 77-98

as
in new window

Handle: RePEc:eee:jimfin:v:32:y:2013:i:c:p:77-98
DOI: 10.1016/j.jimonfin.2012.03.002
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/30443

References listed on IDEAS
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.:

as in new window
  1. Martin Uribe & Vivian Z. Yue, 2003. "Country Spreads and Emerging Countries: Who Drives Whom?," NBER Working Papers 10018, National Bureau of Economic Research, Inc.
  2. Michel Normandin, 1994. "Budget Deficit Persistence and the Twin Deficits Hypothesis," Cahiers de recherche CREFE / CREFE Working Papers 31, CREFE, Université du Québec à Montréal.
  3. Masson, Paul R & Bayoumi, Tamim & Samiei, Hossein, 1998. "International Evidence on the Determinants of Private Saving," World Bank Economic Review, World Bank Group, vol. 12(3), pages 483-501, September.
  4. Andrew Berg & Jeffrey Sachs, 1988. "The Debt Crisis: Structural Explanations of Country Performance," NBER Working Papers 2607, National Bureau of Economic Research, Inc.
  5. 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.
  6. Fry, Maxwell J., 1989. "Foreign debt instability: an analysis of national saving and domestic investment responses to foreign debt accumulation in 28 developing countries," Journal of International Money and Finance, Elsevier, vol. 8(3), pages 315-344, September.
  7. Masao Ogaki & Jonathan David Ostry & Carmen Reinhart, 1995. "Saving Behavior in Low and Middle-Income Developing Countries; A Comparison," IMF Working Papers 95/3, International Monetary Fund.
  8. Gali, Jordi, 1990. "Finite horizons, life-cycle savings, and time-series evidence on consumption," Journal of Monetary Economics, Elsevier, vol. 26(3), pages 433-452, December.
  9. Jonathan D. Ostry & Carmen M. Reinhart, 1992. "Private Saving and Terms of Trade Shocks: Evidence from Developing Countries," IMF Staff Papers, Palgrave Macmillan, vol. 39(3), pages 495-517, September.
  10. Jean-Louis Combes & Tahsin Saadi-Sedik, 2006. "How Does Trade Openness Influence Budget Deficits in Developing Countries?," IMF Working Papers 06/3, International Monetary Fund.
  11. repec:fth:harver:1435 is not listed on IDEAS
  12. Philip R. Lane & Gian Maria Milesi-Ferretti, 2006. "The External Wealth of Nations Mark II: Revised and Extended Estimates of Foreign Assets and Liabilities,1970–2004," The Institute for International Integration Studies Discussion Paper Series iiisdp126, IIIS.
  13. Roubini, Nouriel, 1991. "Economic and political determinants of budget deficits in developing countries," Journal of International Money and Finance, Elsevier, vol. 10(1, Supple), pages S49-S72, March.
  14. Paul Cashin & Luis Felipe Céspedes & Ratna Sahay, 2003. "Commodity Currencies and the Real Exchange Rate," Working Papers Central Bank of Chile 236, Central Bank of Chile.
  15. Menzie David Chinn & Eswar S Prasad, 2000. "Medium-Term Determinants of Current Accounts in Industrial and Developing Countries; An Empirical Exploration," IMF Working Papers 00/46, International Monetary Fund.
  16. Reinhart, Carmen & Ogaki, Masao & Ostry, Jonathan, 1995. "Saving behavior in low- and middle-income developing countries," MPRA Paper 13757, University Library of Munich, Germany.
  17. Haque, Nadeem U & Montiel, Peter, 1989. "Consumption in Developing Countries: Tests for Liquidity Constraintsand Finite Horizons," The Review of Economics and Statistics, MIT Press, vol. 71(3), pages 408-15, August.
  18. Fry, Maxwell J., 1993. "Foreign debt accumulation: financial and fiscal effects and monetary policy reactions in developing countries," Journal of International Money and Finance, Elsevier, vol. 12(4), pages 347-367, August.
  19. Calderon Cesar Augusto & Chong Alberto & Loayza Norman V., 2002. "Determinants of Current Account Deficits in Developing Countries," The B.E. Journal of Macroeconomics, De Gruyter, vol. 2(1), pages 1-33, March.
  20. Blanchard, Olivier J, 1985. "Debt, Deficits, and Finite Horizons," Journal of Political Economy, University of Chicago Press, vol. 93(2), pages 223-47, April.
  21. Giovannini, Alberto, 1985. "Saving and the real interest rate in LDCs," Journal of Development Economics, Elsevier, vol. 18(2-3), pages 197-217, August.
  22. John Y. Campbell & N. Gregory Mankiw, 1989. "Consumption, Income, and Interest Rates: Reinterpreting the Time Series Evidence," NBER Working Papers 2924, National Bureau of Economic Research, Inc.
  23. César Calderón & Alberto Chong & Luisa Zanforlin, 2007. "Current Account Deficits in Africa: Stylized Facts and Basic Determinants," Economic Development and Cultural Change, University of Chicago Press, vol. 56, pages 191-221.
  24. Mendoza, Enrique G, 1995. "The Terms of Trade, the Real Exchange Rate, and Economic Fluctuations," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 36(1), pages 101-37, February.
  25. Martin Boileau & Michel Normandin, 1997. "Aggregate Employment, Real Business Cycles, and Superior Information," Cahiers de recherche CREFE / CREFE Working Papers 55, CREFE, Université du Québec à Montréal.
  26. Gruber, Joseph W. & Kamin, Steven B., 2007. "Explaining the global pattern of current account imbalances," Journal of International Money and Finance, Elsevier, vol. 26(4), pages 500-522, June.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:eee:jimfin:v:32:y:2013:i:c:p:77-98. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Shamier, Wendy)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.