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Long-Run Linkage Between Budget Deficit And Trade Deficit In Lebanon: Results From The Uecm And Bounds Tests

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  • Ali Salman Saleh

    (School of Business, Monash University Malaysia.)

Abstract

This paper examines the linkage between budget deficit and trade deficit for Lebanon during the period from 1975 to 2003. The purpose is to test the validity of the Keynesian proposition and the Ricardian equivalence in the case of Lebanon. A robust econometric framework called the unrestricted error correction model (UECM) and a cointegration test called the bounds test are used to examine whether budget deficit and trade deficit are cointegrated. The Granger causality test shows that causality runs from trade deficit to budget deficit and the relationship is positive and statistically significant. The empirical analysis in this paper partially supports the Keynesian view that there is a linkage between trade deficit and budget deficit but the direction of causality is reversed which is consistent with many other empirical studies. The result suggests that any policy measures to reduce the trade deficit in Lebanon could well assist in reducing the Lebanese budget deficit.

Suggested Citation

  • Ali Salman Saleh, 2006. "Long-Run Linkage Between Budget Deficit And Trade Deficit In Lebanon: Results From The Uecm And Bounds Tests," IIUM Journal of Economics and Management, IIUM Journal of Economis and Management, vol. 14(1), pages 29-48, December.
    • Handle: RePEc:ije:journl:v:14:y:2006:i:1:p:29-48
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    References listed on IDEAS

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    Cited by:

    1. Demdoumi, Meriem, 2016. "La gestion structurelle des déficits jumeaux au Maroc et la recherche d’une stratégie d’équilibre [Structural management of twin deficits in Morocco and Finding an equilibrium strategy]," MPRA Paper 71533, University Library of Munich, Germany, revised 2016.
    2. E Lau & S Abu Mansor & C-H Puah, 2010. "Revival of the Twin Deficits in Asian Crisis-affected Countries," Economic Issues Journal Articles, Economic Issues, vol. 15(1), pages 29-54, March.
    3. Dushni Weerakoon & Utsav Kumar & Roselle Dime, 2019. "Sri Lanka’s Macroeconomic Challenges: A Tale of Two Deficits," Working Papers id:13022, eSocialSciences.
    4. Mumtaz, Kinza & Munir, Kashif, 2016. "Dynamics of Twin Deficits in South Asian Countries," MPRA Paper 74592, University Library of Munich, Germany.

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    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory

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