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Causality tests of budget and current account deficits: Cross-country comparisons


  • Ahmed M. Khalid

    () (Department of Economics, National University of Singapore, 10 Kent Ridge Crescent, Singapore 119260)

  • Teo Wee Guan

    () (Ministry of Community Development, 512, Thomson Road, MCD Building, Singapore 298136)


This study attempts to determine the causal relationship between budget and current account deficits as well as the direction of such causality. A selected sample of some developed and developing countries with annual time series data is used and cointegration techniques are applied to bring evidence regarding this important issue. Our results do not support any long-run relationship between the two deficits for developed countries while the data for developing countries do not reject such a relationship. However, our results suggest a causal relationship between the two deficits for most of the sample countries.

Suggested Citation

  • 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.
  • Handle: RePEc:spr:empeco:v:24:y:1999:i:3:p:389-402
    Note: received: November 1996/final version received: September 1998

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    More about this item


    Twin deficits · cointegration · Granger causality · developed vs. developing countries;

    JEL classification:

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


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