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  • The twin deficits hypothesis in the SAARC countries: an empirical investigation

    Author(s)
    Ravinthirakumaran, Navaratnam
    Selvanathan, Saroja
    Selvanathan, Eliyathamby A
    Griffith University Author(s)
    Selvanathan, Saroja
    Selvanathan, Selva A.
    Year published
    2016
    Metadata
    Show full item record
    Abstract
    Twin deficits hypothesis postulates that there is a strong positive linear relationship between a country's budget deficit and its current account deficit. This paper empirically investigates the existence of this relationship in five South Asian Association for Regional Cooperation (SAARC) countries using time-series data for the period 1980–2012. The paper uses cointegration analysis, error correction modeling and Granger causality test under a vector autoregression framework. The results show that the direction of causality for the SAARC countries is mixed. The findings confirm that budget deficit causes current account ...
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    Twin deficits hypothesis postulates that there is a strong positive linear relationship between a country's budget deficit and its current account deficit. This paper empirically investigates the existence of this relationship in five South Asian Association for Regional Cooperation (SAARC) countries using time-series data for the period 1980–2012. The paper uses cointegration analysis, error correction modeling and Granger causality test under a vector autoregression framework. The results show that the direction of causality for the SAARC countries is mixed. The findings confirm that budget deficit causes current account deficit for Pakistan and Sri Lanka, whereas the reverse is true for India and Nepal. The direction of causality is found to be unidirectional from current account deficit to budget deficit in the short run for Bangladesh.
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    Journal Title
    Journal of the Asia Pacific Economy
    Volume
    21
    Issue
    1
    DOI
    https://doi.org/10.1080/13547860.2015.1053592
    Subject
    Applied Economics not elsewhere classified
    Applied Economics
    Policy and Administration
    Banking, Finance and Investment
    Budget deficit
    Current account deficit
    SAARC
    Error correction
    Granger causality
    Vector autoregression
    Publication URI
    http://hdl.handle.net/10072/101336
    Collection
    • Journal articles

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