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Twin Deficit Hypothesis - Conditional Or Universal Significance

Author

Listed:
  • Gancho Ganchev

    (South-West University “Neofit Rilski”)

  • Vladimir Tsenkov

    (South-West University “Neofit Rilski”)

  • Maria Panova

    (South-West University “Neofit Rilski”)

Abstract

The validity of the Tween Deficit Hypothesis (TDH) is tested based on the use of panel data from 188 countries and the use of least squares panel regression. Although the hypothesis presumes a universalism of its application, the empirical results indicate the presence of characteristic groupings of countries. The division is based both on the rejection or acceptance of the hypothesis, as well as on the magnitude and influence of country-specific factors directly influencing the relationship between current account and government budget balances. The empirical data clearly shows the deafferentation of the studied countries based on the level of economic development, as well as based on petrol and manufacturing oriented export countries. Another interesting finding is the fact that countries with a currency board demonstrate the clearest rejection of the TDH between all of the studied countries.

Suggested Citation

  • Gancho Ganchev & Vladimir Tsenkov & Maria Panova, 2020. "Twin Deficit Hypothesis - Conditional Or Universal Significance," Economic Science, education and the real economy: Development and interactions in the digital age, Publishing house Science and Economics Varna, issue 1, pages 33-45.
    • Handle: RePEc:vrn:cfdide:y:2020:i:1:p:33-45
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    More about this item

    Keywords

    current account balance; government budget balance; twin deficit hypothesis; panel regression; G-8; G-20; Eurozone; countries with currency board; OPEC member countries;
    All these keywords.

    JEL classification:

    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • H61 - Public Economics - - National Budget, Deficit, and Debt - - - Budget; Budget Systems
    • H62 - Public Economics - - National Budget, Deficit, and Debt - - - Deficit; Surplus
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements

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