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Budget and Current Account Deficits in SEACEN Countries: Evidence Based on the Panel Approach

Author Info

Listed author(s):
  • Ahmad Zubaidi Baharumshah

    (UPM)

  • Evan Lau

    (UNIMAS)

Abstract

In this paper, the twin deficits hypothesis was examined using data of nine SEACEN countries. To compensate for the lack of time series observations, data was polled from the nine countries into one panel. The effects of interest rate and exchange rate in the causal chain between budget and current account deficits were stressed. At the empirical level, there is enough evidence to support the view that Asian budget deficit causes current account deficit directly as well as indirectly. From the policy perspective, the statistical analysis suggests that managing budget deficit offers scope for improvement in the current account deficit. However, this finding does not support the policy of manipulating the intermediate variables to reduce the twin deficits to a sustainable level since these variables appear to be endogenous in the system.

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File URL: http://econwpa.repec.org/eps/if/papers/0504/0504002.pdf
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Paper provided by EconWPA in its series International Finance with number 0504002.

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Date of creation: 01 Apr 2005
Handle: RePEc:wpa:wuwpif:0504002
Note: Type of Document - pdf
Contact details of provider: Web page: http://econwpa.repec.org

Keywords: twin deficits;

Find related papers by JEL classification:

  • F3 - International Economics - - International Finance
  • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance

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Cited by:

  1. 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.

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