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Causality tests of the relationship between the twin deficits

Author

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  • Eugene Kouassi

    ()

  • Mbodja Mougoué

    ()

  • Kern O. Kymn

    ()

Abstract

We re-examine the causality between the twin deficits by testing for Granger non-causality between BD and CAD based on extended causality tests initially developed by Toda and Yamamoto (1995). Using international data from a sample of twenty developed and developing countries, we find evidence of causality (unidirectional or bi-directional) between the twin deficits for some developing countries. However, the results for developed countries are less persuasive. The empirical findings of this study are robust to alternative and independent causality testing procedures. Copyright Springer-Verlag 2004

Suggested Citation

  • Eugene Kouassi & Mbodja Mougoué & Kern O. Kymn, 2004. "Causality tests of the relationship between the twin deficits," Empirical Economics, Springer, vol. 29(3), pages 503-525, September.
  • Handle: RePEc:spr:empeco:v:29:y:2004:i:3:p:503-525 DOI: 10.1007/s00181-003-0181-5
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    Cited by:

    1. Algieri, Bernardina, 2013. "An empirical analysis of the nexus between external balance and government budget balance: The case of the GIIPS countries," Economic Systems, Elsevier, vol. 37(2), pages 233-253.
    2. repec:kap:iaecre:v:19:y:2013:i:3:p:289-310 is not listed on IDEAS
    3. Marinheiro, Carlos Fonseca, 2008. "Ricardian equivalence, twin deficits, and the Feldstein-Horioka puzzle in Egypt," Journal of Policy Modeling, Elsevier, vol. 30(6), pages 1041-1056.
    4. Bernardin Senadza & Godson Korbla Aloryito, 2016. "The twin deficits hypothesis: Evidence from Ghana," International Journal of Business and Economic Sciences Applied Research (IJBESAR), Eastern Macedonia and Thrace Institute of Technology (EMATTECH), Kavala, Greece, vol. 9(3), pages 55-62, December.
    5. Holmes, Mark J., 2011. "Threshold cointegration and the short-run dynamics of twin deficit behaviour," Research in Economics, Elsevier, vol. 65(3), pages 271-277, September.
    6. Francesco Forte & Cosimo Magazzino, 2013. "Twin Deficits in the European Countries," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 19(3), pages 289-310, August.
    7. Wong Hock Tsen, 2014. "External Balance And Budget In Malaysia," Asian Academy of Management Journal of Accounting and Finance (AAMJAF), Penerbit Universiti Sains Malaysia, pages 37-54.
    8. Ahmad Zubaidi Baharumshah & Evan Lau, 2009. "Structural breaks and the twin deficits hypothesis: Evidence from East Asian countries," Economics Bulletin, AccessEcon, vol. 29(4), pages 2517-2524.
    9. Aviral Kumar TIWARI & Suresh K G & Mihai MUTAȘCU, 2015. "A Structural VAR analysis of Fiscal shocks on current accounts in Greece," Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania - AGER, vol. 0(3(604), A), pages 5-20, Autumn.
    10. Xie, Zixiong & Chen, Shyh-Wei, 2014. "Untangling the causal relationship between government budget and current account deficits in OECD countries: Evidence from bootstrap panel Granger causality," International Review of Economics & Finance, Elsevier, vol. 31(C), pages 95-104.
    11. Evan Lau & Tuck Cheong Tang, 2009. "Twin deficits in Cambodia: An Empirical Study," Economics Bulletin, AccessEcon, vol. 29(4), pages 2783-2794.
    12. Samia OMRANE BELGUITH, 2016. "Twin deficit in MENA countries: an empirical investigation," Romanian Economic Journal, Department of International Business and Economics from the Academy of Economic Studies Bucharest, vol. 19(60), pages 123-146, June.
    13. Kalou, Sofia & Paleologou, Suzanna-Maria, 2012. "The twin deficits hypothesis: Revisiting an EMU country," Journal of Policy Modeling, Elsevier, vol. 34(2), pages 230-241.
    14. Puah, Chin-Hong & Lau, Evan & Tan, Kim Lee, 2006. "Budget-current account deficits nexus in Malaysia," MPRA Paper 37677, University Library of Munich, Germany.
    15. Ashima Goyal & Abhishek Kumar, 2017. "The Effect of oil shocks and cyclicality in hiding Indian twin deficits," Indira Gandhi Institute of Development Research, Mumbai Working Papers 2017-005, Indira Gandhi Institute of Development Research, Mumbai, India.
    16. repec:agr:journl:v:3(604):y:2015:i:3(604):p:5-20 is not listed on IDEAS
    17. Ashima Goyal & Abhishek Kumar, 2017. "The Effect of Oil Shocks and Cyclicality in Hiding Indian Twin Deficits," Working Papers id:11894, eSocialSciences.

    More about this item

    Keywords

    Granger non-causality; likelihood ratio; wald; and Lagrange multiplier tests; alternative tests; twin deficits; international evidence; C20; C22;

    JEL classification:

    • C20 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - General
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes

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