Have large budget deficits caused increasing trade deficits? Evidence from a developing country
This paper investigates the relationship between budget and trade deficits on the basis of previous empirical work. Within the framework of cointegration analysis, error-correction modeling and Granger causality, the paper evaluates the validity of the Keynesian proposition (conventional view) and the Ricardian equivalence hypothesis. The error-correction modeling approach supports the Keynesian proposition in the short and long run. The empirical evidence reveals one-way causality from budget deficit to trade deficit. Copyright International Atlantic Economic Society 1997
Volume (Year): 25 (1997)
Issue (Month): 1 (March)
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