Long-Run Linkage Between Budget Deficit And Trade Deficit In Lebanon: Results From The Uecm And Bounds Tests
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.
Volume (Year): 14 (2006)
Issue (Month): 1 (December)
|Contact details of provider:|| Postal: |
Phone: (603) 6196 4770
Fax: (603) 6196 4850
Web page: http://www.iium.edu.my/enmjournal/
More information through EDIRC
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.:
- 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.
- Robert J. Barro, 1988.
"The Ricardian Approach to Budget Deficits,"
728, Queen's University, Department of Economics.
- Ahmed M. Khalid & Teo Wee Guan, 1999. "Causality tests of budget and current account deficits: Cross-country comparisons," Empirical Economics, Springer, vol. 24(3), pages 389-402.
- M. Hashem Pesaran & Yongcheol Shin & Richard J. Smith, 2001. "Bounds testing approaches to the analysis of level relationships," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 16(3), pages 289-326.
- Kearney, Colm & Monadjemi, Mehdi, 1990. "Fiscal policy and current account performance: International evidence on the twin deficits," Journal of Macroeconomics, Elsevier, vol. 12(2), pages 197-219.
- Bundt, Thomas & Solocha, Andrew, 1988. "Debt, deficits and the dollar," Journal of Policy Modeling, Elsevier, vol. 10(4), pages 581-600.
- David J. Smyth & Yu Hsing, 1995. "In Search Of An Optimal Debt Ratio For Economic Growth," Contemporary Economic Policy, Western Economic Association International, vol. 13(4), pages 51-59, October.
When requesting a correction, please mention this item's handle: RePEc:ije:journl:v:14:y:2006:i:1:p:29-48. 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: (Gairuzazmi Mat Ghani)
If references are entirely missing, you can add them using this form.