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Budget-current account deficits nexus in Malaysia

  • Puah, Chin-Hong
  • Lau, Evan
  • Tan, Kim Lee

The purpose of this study is to contribute further on the twin deficits debate in a developing economy. The data for Malaysia over four decades is used as a case study. Empirical result obtained from the Johansen-Juselius (1990) cointegration test indicates that budget deficit and current account deficit do not contain common stochastic trend in the long run. However, the findings from the Granger non-causality test by Toda-Yamamoto (1995) support the Summer’s (1988) reverse causation proposition. This implies that a unidirectional causality running from current account to budgetary variable where the deterioration in current account deficit could worsen the budgetary position in the case of Malaysia.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 37677.

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Date of creation: 2006
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Publication status: Published in The Journal of Global Business Management 2.2(2006): pp. 126-135
Handle: RePEc:pra:mprapa:37677
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  19. Osterwald-Lenum, Michael, 1992. "A Note with Quantiles of the Asymptotic Distribution of the Maximum Likelihood Cointegration Rank Test Statistics," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 54(3), pages 461-72, August.
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