Dynamics of Twin Deficits, Ricardian Equivalence, and Feldstein-Horioka Puzzle in South Asian Countries

2021 ◽  
Vol 39 (8) ◽  
Author(s):  
Kashif Munir ◽  
Kinza Mumtaz
Keyword(s):  
Sri Lanka ◽  
South Asian ◽  
Current Account ◽  
Budget Deficit ◽  
Current Account Deficit ◽  
Ricardian Equivalence ◽  
Asian Countries ◽  
Twin Deficits ◽  
Role Of Government ◽  
Private Savings

This study examines the relationship between budget deficit and current account deficit, specifically twin deficits hypothesis, Ricardian equivalence hypothesis, and Feldstein-Horioka puzzle in South Asian countries. Results show that budget deficit and private savings investment balance do not affect current account deficit in the long run and rejects the Keynesian view of twin deficits hypothesis in South Asian countries. No causality exists between current account deficit and budget deficit in India, Pakistan, and Sri Lanka in short run, while bidirectional causality exists in Bangladesh. Ricardian equivalence hypothesis is rejected in Bangladesh and Sri Lanka, while it holds in India and Pakistan. Feldstein-Horioka puzzle exists in Bangladesh and Sri Lanka, while it does not exist in India and Pakistan. Structural reforms in fiscal and trade sector are required to avoid emergence of twin deficits, while an active and effective role of government is required for sustainable economic growth.

scholarly journals Testing for Twin Deficits and Ricardian Equivalence Hypotheses: Evidence from Iran

2012 ◽  
Vol 3 (3) ◽  
pp. 77-84 ◽  
Author(s):  
Farzane Bagheri ◽  
Salma Keshtkaran .
Keyword(s):  
Current Account ◽  
Budget Deficit ◽  
Current Account Deficit ◽  
Ricardian Equivalence ◽  
Twin Deficits ◽  
Long Run ◽  
Causality Tests ◽  
Causality Relationship ◽  
The Relationship ◽  
Casual Relationship

The main purpose of this study is to examine the relationship between budget deficit and current account deficit in Iran from 1971 to 2007. Twin deficits, which argues that a larger budget deficit leads to an expanded current account deficit, and Ricardian equivalence hypothesis, which states that there is no casual relationship between these two deficits, are examined for this purpose. To achieve this goal, Johansen co-integration and Granger causality tests are used for the period under study. The results indicate that there exists a long run equilibrium link between budget deficit and current account deficit. There is a one-way causality relationship from the budget deficit toward the current account deficit.

Re-examining the twin deficit hypothesis for major South Asian economies

2019 ◽  
Vol 12 (3) ◽  
pp. 265-287
Author(s):  
Shruti Shastri
Keyword(s):  
Time Series ◽  
Exchange Rate ◽  
Interest Rate ◽  
Sri Lanka ◽  
South Asian ◽  
Current Account ◽  
Transmission Mechanism ◽  
Asian Countries ◽  
Content Type ◽  
Long Run

Purpose The purpose of this study is to revisit the twin deficit hypothesis (TDH) and provide insights into the transmission mechanism connecting budget deficits and current account deficits for five major South Asian countries, namely, India, Bangladesh, Pakistan Sri Lanka and Nepal for the period 1985-2016. Design/methodology/approach This study uses a multivariate framework including real interest rate, real exchange rate and real gross domestic product to avoid the possibility of incorrect inferences caused by omission of relevant mediating variables. The long-run relationship and causality are investigated through the autoregressive distributed lag bounds testing approach and Toda Yamamoto approach, respectively, for each individual country. The robustness of the results is assessed with the help of Westerlund’s cointegration test and group mean fully modified ordinary least squares (GM-FMOLS), group mean dynamic ordinary least square (GM-DOLS) and common correlated effect mean group (CCEMG) estimators in the panel framework. Findings Both time series and panel evidences indicate long-run relationship between budget balance (BB) and current account balance (CAB) together with the mediating variables. The results indicate bi-directional causation between the two balances for India and Bangladesh, TDH for Pakistan and Sri Lanka and the reverse causation from CAB to BB for Nepal. Regarding the transmission mechanism, the results indicate the absence of the causal chain postulated by Mundell–Fleming, which predicts that BB causes CAB via interest rate and exchange rate. A CCEMG estimate of the import demand function reveals a positive government spending elasticity of imports suggesting that BB affects CAB by direct impact through demand. Originality/value This study augments the twin deficit literature on South Asian countries by providing insights into the transmission mechanism connecting the BB and CAB. Moreover, the study provides robust evidences on the TDH by using both time series and panel data techniques.

Twin deficits hypothesis in Bangladesh: an empirical investigation

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Sima Rani Dey ◽  
Mohammad Tareque
Keyword(s):  
Current Account ◽  
Budget Deficit ◽  
Good Governance ◽  
Current Account Deficit ◽  
Trade Deficit ◽  
Fiscal Deficit ◽  
Twin Deficits ◽  
Content Type ◽  
Long Run ◽  
The Current Account

PurposeThis study attempts to examine the twin deficits hypothesis for Bangladesh. Along with the traditional twin deficits hypothesis associated with the current account and fiscal deficit, the paper also explores the causal relationship between the trade deficit and fiscal deficit.Design/methodology/approachWe start with the investigation of the conventional twin deficit hypothesis employing autoregressive distributed lag (ARDL) bounds testing approach in a multivariate framework. Due to the absence of cointegration between the budget deficit and trade deficit, the study adopts a multivariate vector autoregressive (VAR) model to analyze the nexus.FindingsThe study supports the presence of the twin deficits hypothesis in Bangladesh, both in the short run and long run. Unidirectional causation running from the budget deficit to the current account deficit in the long run. The trade model also supports the twin deficit hypothesis, like the aforementioned current account model.Practical implicationsTherefore, the sustainable fiscal deficit is the key to maintain a stable current account deficit and trade deficit in Bangladesh.Originality/valueThe study incorporates the country risk indicators to address the governance issue while analyzing the models' deficit scenarios because good governance is an integral part of explaining the development outcome and failure of a country like Bangladesh.

scholarly journals Twin Deficits and Feldstein-Horioka Puzzle in the Case Iran

2012 ◽  
Vol 3 (5) ◽  
pp. 167-171 ◽  
Author(s):  
Farzane Bagheri ◽  
Fatemeh Daroghe Hazrati .
Keyword(s):  
Current Account ◽  
Capital Mobility ◽  
Budget Deficit ◽  
Current Account Deficit ◽  
International Capital ◽  
Twin Deficits ◽  
International Capital Mobility ◽  
Long Run ◽  
Causality Relationship ◽  
The Relationship

The main purpose of this study is to examine the relationship between budget deficit and current account deficit in Iran's economy through twin deficits and Feldstein-Horioka puzzle. To achieve this goal, Engel-Granger and seemingly unrelated regressions are used during "1971-2007". The results indicate that there exists a long run equilibrium link between budget deficit and current account deficit. There is a one–way causality relationship from the budget deficit toward the current account deficit .Testing the validity of the Feldstein-Horioka puzzle indicates a low level of international capital mobility for Iran.

scholarly journals EMPIRICAL STUDY OF TWIN DEFICITS IN INDONESIA: THE RELATIONSHIP BETWEEN CAUSALITY AND EARLY WARNING SYSTEM OF TWIN DEFICITS’ CAUSE

2016 ◽  
Vol 1 (1) ◽  
Author(s):  
Prawudya Kuncahyo
Keyword(s):  
Current Account ◽  
Early Warning ◽  
Early Warning System ◽  
Budget Deficit ◽  
Current Account Deficit ◽  
Warning System ◽  
Abnormal Behavior ◽  
Signal Extraction ◽  
Twin Deficits ◽  
The Current Account

The aim of this research is to investigate the causality of deficit budget with the current account deficit (twin deficits) in Indonesia and to detect the decision indicators of twin deficit as an early warning system model of twin deficits’ occurrence.            The research applied a quantitative approach with granger causative data to find the significant relationship of twin deficits in Indonesia. At the early stage, it analyzes the detection of twin deficits by using quantitative phenomenological approach in a form of mathematic formula calculation via non-parametric model with EWS signal extraction. It used 1 derivation standard (DS) and 24 months signal windows to extract signal. Signal extraction is applied to monitor the evolution of economic indicators which has a systematic tendency of twin deficits in Indonesia. Microsoft Office Excel 2007 and E. Views 7 are the software used within this research.            The result of this research signified that there is a relationship between twin deficits in Indonesia with the budget deficit which is influencing the current account deficit. It strengthen the Twin Deficits Hypothesis (TDH) that explains the existence of budget deficit will affect the current account deficit by access of interest rate. Additionally, the result of a signal extraction calculation from the chosen indicator variable trend showed a positive signal of twin deficits. It is justified by the abnormal behavior of variables which states up to 50 percent probability. Those variables are export growth, import growth, terms of trade, inflation, growing industrial sector, real exchange rate, foreign reserve growth, and growth of world oil price.

scholarly journals Investigating the Twin Deficits in Albania

2015 ◽  
Vol 3 (2) ◽  
pp. 69
Author(s):  
Ermira Kalaj ◽  
Mithat Mema
Keyword(s):  
Current Account ◽  
Budget Deficit ◽  
Current Account Deficit ◽  
Private Investment ◽  
Causal Link ◽  
Simultaneous Equation ◽  
Twin Deficits ◽  
Bidirectional Relationship ◽  
Causality Tests ◽  
Macroeconomic Implications

This paper focuses on the direction of causality between budget deficit and current account deficit in Albania based on Granger causality tests. We use annual macroeconomic data for the period from 1992 to 2014. Before proceeding with the empirical analysis we test for unit root, the non-parametric Phillips-Peron test is conducted. The classical Granger test is extended including control variables such as private investment and savings, exchange rates, inflation rate, and interest rate. Empirical results support the evidence of a causal link between the twin deficits. In this sense fiscal budget cannot be considered as a fully controlled variable. A fiscal policy has important macroeconomic implications in the foreign trade indicators. To further investigate on the robustness of our results we examined the causal link between budget deficit and current account deficit based on the simultaneous equation. Results still persist in the bidirectional relationship between these two deficits.

scholarly journals Validity of Triple Deficit Hypothesis in Transition Economies

2014 ◽  
Author(s):  
Dilek Özdemir ◽  
Özge Buzdağlı ◽  
Ömer Selçuk Emsen ◽  
Ahmet Alkan Çelik
Keyword(s):  
World Bank ◽  
Transition Economies ◽  
Current Account ◽  
Regression Models ◽  
Budget Deficit ◽  
Current Account Deficit ◽  
Ricardian Equivalence ◽  
Panel Regression ◽  
Data Set ◽  
Public Deficit

Triple deficit hypothesis defined as a status in which budget deficit, current account deficit and saving-investment gap are seen together has become important to explain the equalization problems of the countries in recent years. Also, the cases where saving-investment gaps are equalized by means of external deficit or public deficit is attempted to equalize by means of external deficit define twin deficit. While Conventional Keynesian Approach argues that budget deficit causes current account deficit, Ricardian Equivalence Approach claims that there is no correlation between budget deficit and current account deficit. In this study, the validity of the triple deficit hypothesis for the 17 transition economies between 2003-2011 by means of convenient and uninterrupted data set was analyzed via panel regression models. The data set was collected from World Bank and IMF databases. The data belonging to the variables of current account deficit, budget deficit and saving-investment gap were employed. The findings showed that the triple deficit hypothesis for the 17 transition economies is not valid in the period among 2003-2011. However, some evidence was found about the validity of Ricardian Equivalence Approach and the private sector saving-investment gap was found to be the primary riser of the current account deficit.

scholarly journals Does Foreign Direct Investment Influence Renewable Energy Consumption? Empirical Evidence from South Asian Countries

Energies ◽  
2021 ◽  
Vol 14 (12) ◽  
pp. 3470
Author(s):  
Xueqing Kang ◽  
Farman Ullah Khan ◽  
Raza Ullah ◽  
Muhammad Arif ◽  
Shams Ur Rehman ◽  
...  
Keyword(s):  
Foreign Direct Investment ◽  
Renewable Energy ◽  
Sri Lanka ◽  
South Asian ◽  
Environmental Sustainability ◽  
Direct Investment ◽  
Least Square ◽  
Asian Countries ◽  
Ordinary Least Square ◽  
The Relationship

In selected South Asian countries, the study intends to investigate the relationship between urban population (UP), carbon dioxide (CO2), trade openness (TO), gross domestic product (GDP), foreign direct investment (FDI), and renewable energy (RE). Fully modified ordinary least square (FMOLS) and dynamic ordinary least square (DOLS) models for estimation were used in the study, which covered yearly data from 1990 to 2019. We used Levin–Lin–Chu, Im–Pesaran–Shin, and Fisher PP tests for the stationarity of the variables. The outcomes of the panel cointegration approach looked at whether there was a long-run equilibrium nexus between selected variables in Pakistan, Bangladesh, India, and Sri Lanka. The FMOLS approach was also used to assess the relationship, and the results suggest that there is a significant and negative nexus between FDI and renewable energy in south Asian nations. The study’s findings reveal a strong and favorable relationship between GDP and renewable energy use. In South Asian nations (Sri Lanka, Pakistan, India, and Bangladesh), the FMOLS and DOLS findings are nearly identical, but the authors used the DOLS model for robustification. According to the findings, policymakers in South Asian economies (Sri Lanka, Pakistan, India, and Bangladesh) should view GDP and FDI as fundamental policy instruments for environmental sustainability. To reduce reliance on hazardous energy sources, the government should also reassure financial sectors to participate in renewable energy.

Suicide methods in South Asia over two decades (2001–2020)

2021 ◽  
pp. 002076402110157
Author(s):  
S M Yasir Arafat ◽  
Syeda Ayat-e-Zainab Ali ◽  
Vikas Menon ◽  
Fahad Hussain ◽  
Daniyal Shabbir Ansari ◽  
...  
Keyword(s):  
Sri Lanka ◽  
South Asia ◽  
South Asian ◽  
English Language ◽  
Public Health Problem ◽  
Asian Countries ◽  
Pubmed Central ◽  
Suicide Methods ◽  
Search Terms ◽  
Quantitative Studies

Background: Suicide is a global preventable public health problem. About a quarter of all suicides in the world occur in South Asia. As means restriction is an important suicide prevention strategy, gaining knowledge of the common suicide methods and their changing trends in each country and region is crucial. Aims: We aimed to assess the suicide methods in South Asian countries over the last two decades. Methods: A search was performed in PubMed, PubMed Central, Scopus, and Google Scholar with the search terms. Original articles of quantitative studies, published in the English language, from 2001 to 2020, with full-accessible text, that rank different methods of suicide in eight South Asian countries, were included. Results: A total of 68 studies were found eligible for review. The Maximum number of studies were found from India ( n = 38), followed by Bangladesh ( n = 12), Pakistan ( n = 9), Sri Lanka ( n = 6), and Nepal ( n = 3). Hanging ( n = 40, 55.8%) and poisoning ( n = 24, 35.3%) were the two most common suicide methods reported, in that order. Hanging followed by poisoning were the commonest suicide methods in Bangladesh, India, and Pakistan while in Sri Lanka, poisoning was the preferred method to hanging. There is a decline in suicide by poisoning and an increase in suicide by hanging in Sri Lanka, Bangladesh, and India. Although hanging is still the commonest method in Pakistan, the use of firearms is growing in recent years (2011–2020). Conclusions: There is a steady decline in the incidence of suicides by poisoning following pesticide regulations in South Asian countries. However, there is heterogeneity of study methods, probable under-reporting of suicide, and lack of robust suicide data.

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