scholarly journals Twin Deficit and the Macroeconomic variables in Kenya

2014 ◽  
Vol 2 (9) ◽  
pp. 64-85
Author(s):  
Kennedy O Osoro ◽  
Seth O Gor ◽  
Mary L Mbithi
Keyword(s):  
Interest Rates ◽  
Current Account ◽  
Budget Deficit ◽  
Current Account Deficit ◽  
Empirical Relationship ◽  
Trade Deficit ◽  
Current Account Balance ◽  
Budget Deficits ◽  
Domestic Investment ◽  
Macroeconomic Variables

The purpose of this paper is to test the twin deficit hypothesis and empirical relationship between current account balance and budget deficit while including other important macroeconomic variables such as growth, interest rates, money supply (M3) in Kenya from 1963-2012. The study was based on co integration analysis and error correction model (ECM). The results reveal a long-run association between the trade deficit and the fiscal deficit. The findings indicate that the Keynesian view fits well for Kenya since the causality runs from budget deficit to current account deficit. We detected unidirectional causation between the twin deficits, running from budget deficit to current account directly and indirectly through budget deficits which raise real interest rates, crowd out domestic investment, and cause the currency to appreciate in relation to the other currencies and further deteriorates the current account deficit.

scholarly journals The Twin Deficits Phenomenon: Evidence from Pakistan

2000 ◽  
Vol 39 (4II) ◽  
pp. 535-550 ◽  
Author(s):  
Anjum Aqeel ◽  
Mohammed Nishat
Keyword(s):  
Fiscal Policy ◽  
Current Account ◽  
Budget Deficit ◽  
Current Account Deficit ◽  
Theoretical Work ◽  
Current Account Balance ◽  
Improved Performance ◽  
Necessary And Sufficient ◽  
The Relationship ◽  
The Current Account

Like most developing countries a steady budget deficit in Pakistan is the primary cause of all major ills of the economy. It has varied between 5.4 to 8.7 percent during last two decades. On the other hand the current account deficit varied between 2.7 to 7.2 percent during the same period. The variations in fiscal policy can lead to predictable developments in an open economy’s performance on current account, remains a controversial issue. An important aspect of this issue concerns what is termed as twin deficit analysis, according to which fiscal deficits and current account balances are very closely related so that reductions in the former are both necessary and sufficient to obtain improved performance in the later. Theoretical work on the relationship that exist between variations in fiscal policy and the current account balance has been based upon two types of models. These models are constructed from postulated behavioural relationships that purport to describe how the economy works in aggregate without explaining the behaviour of agents who make up the economy [Mundel (1963); Branson (1976); Dornbusch (1976); Kawai (1985) and Marston (1985)]. The second type of model, derives the important macroeconomic relationships from the microfoundations of individual optimising behaviour [Dixit (1978); Neary (1980); Obstfeld (1981); Persson (1982); Kimbrough (1985); Frenkel and Razin (1986); Cuddington and Vinals (1985, 1986a) and Moore (1989)]. However, both of these approaches have yielded divergent results.

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 Effective Use of Foreign Debt, the Case for Turkey

2015 ◽  
Vol 3 (2) ◽  
pp. 107
Author(s):  
S. Cem Karaman
Keyword(s):  
Private Sector ◽  
Current Account ◽  
Government Spending ◽  
Current Account Deficit ◽  
Foreign Debt ◽  
Current Account Balance ◽  
Short Term ◽  
Macroeconomic Variables ◽  
Foreign Borrowing

An advanced financial system is regarded as a hallmark of development. Lending or borrowing money, or debt, plays a vital role in an economy. But just like any other economic decision, borrowing requires a thorough analysis of contingencies. Debt may lead to prosperity through sound investment, or it may overwhelm firms/people when not used properly. In today’s circumstances, borrowing from world financial markets is easier than ever before. In this paper, the possibility of foreign borrowing helping Turkey to improve its macroeconomic variables of GDP, consumption, government spending, investment, exports and current account balance is explored. We look for cointegration relationships between various foreign debt variables classified as public or private foreign debt; short-term or long-term foreign debt, and various macroeconomic variables. Later, the variables studied are tested to see if there are any statistically causal relationships between them. The following results are found: short-term foreign debt is not cointegrated with any of the macroeconomic variables when long-term foreign debt is cointegrated with some of them; private foreign debt is more effective than public foreign debt on macroeconomic variables. Whilst Turkey is critically dependent on foreign borrowing in financing its current account deficit, its current account balance is not cointegrated with any of the foreign debt data. Public foreign debt precedes government spending where private foreign debt follows private sector spending. This is interpreted as a sign that the private sector is more careful with its borrowing decisions than the government since its spending, which is procyclical with the business cycle, is leading its borrowing.

scholarly journals Correlation of Macroeconomic Variables with Twin Deficit in Pakistan

2020 ◽  
Vol 16 (1) ◽  
pp. 1-16
Author(s):  
Nazia Abdul Rehman ◽  
Keyword(s):  
Money Supply ◽  
Current Account ◽  
Current Account Deficit ◽  
Positive Association ◽  
Budget Deficits ◽  
Integration Model ◽  
Macroeconomic Variables ◽  
The Core ◽  
Long Run ◽  
Short Period

The macroeconomic term Twin deficit is intensive of the study, which refers to a situation when in an economy both current account and the budget deficits are running at the correspondent time period. The core objective of the paper to investigate the relationship among the twin deficit hypothesis and major macroeconomic variables (Gross domestic product, Foreign Direct Investment, money supply, and interest rate). The results of the study founded through the secondary time series quarterly data from 1992-2018 of Pakistan’s economy. In the study to examine the stationary of data, applied Augmented Dickey-Fuller test and then used Vector Error Correction and Johansen co-integration Model to examine the short and long-term relationship among observed variables. The core finding of the study was that in short period along with long-run period Pakistan faced twin deficit situation due to positive association of current account deficit and Budget deficit. The outcomes of the study also indicate that GDP and FDI have positively long-run association while money supply and rate of interest have negatively long-run association with twin deficit. These results of the study are very helpful for the decision making and implementation of fiscal, monetary and export policies in Pakistan.

scholarly journals Analysing the Relationship between Budget Deficit and Current Account Deficit in Namibia

2020 ◽  
pp. 35-43
Author(s):  
Achiles Shifidi ◽  
Jacob M. Nyambe
Keyword(s):  
Causal Relationship ◽  
Current Account ◽  
Budget Deficit ◽  
Time Series Data ◽  
Current Account Deficit ◽  
Impulse Response Function ◽  
Transmission Mechanism ◽  
Series Data ◽  
Current Account Balance ◽  
The Government

Is there a causal relationship between budget deficit and current account deficit? This study attempts to explain the significance of the transmission mechanism, (the exchange rate and interest rate) in explaining the twin deficit hypothesis (i.e. budget deficit and current account deficit) in Namibia. The study employed analytical methods of unit roots, cointegration, Granger-causality, and the impulse response function for estimation. In contributing to this ongoing debate, the study used the case of Namibia over the period spanning from 1990-2014 using time series data. Budget deficit and current account deficit proved to be significant. There is a unidirectional causal relationship between budget deficit and current account deficit in Namibia which runs from current account deficit to budget deficit. However, the transmission mechanism proved to be less significant in explaining the twin deficit hypothesis in Namibia.  Having found a positive relationship between current account deficit and budget deficit in Namibia, the government should consider curbing the increasing current account balance as a way of reducing its adverse effect on the budget balance. From this study, it is indicated that stabilising the current account deficit problem could assist in managing the budget deficit problem in Namibia.

scholarly journals The Relationship Between the Budget Deficit and Current Account Deficit in Turkey

2014 ◽  
Vol 3 (3) ◽  
pp. 81-86 ◽  
Author(s):  
Seyfettin Erdoğan ◽  
Durmuş Çağrı Yıldırım
Keyword(s):  
Economic Policy ◽  
Current Account ◽  
Budget Deficit ◽  
Current Account Deficit ◽  
The Other ◽  
Current Account Balance ◽  
Policy Makers ◽  
Negative Effect ◽  
The Relationship

One of the most debated topics in Economics literature is the relation between budget deficit and current account deficit. The data obtained from the presence of this kind of relation is leading for policy makers in terms of determining the quality of the policy to be preferred and the economic policy to be pursued. In this study, the relation between budget deficit and current account deficit in Turkey is analyzed for 2001Q2-2012Q2 period. According to the data obtained, budget deficit has negative and statistically meaningful effect on current account balance. On the other hand, budget deficit has negative effect on current account balance in short terms.

scholarly journals THE BUDGET DEFICIT AND ECONOMIC PERFORMANCE: A SURVEY

2005 ◽  
Vol 50 (02) ◽  
pp. 211-243 ◽  
Author(s):  
ALI SALMAN SALEH ◽  
CHARLES HARVIE
Keyword(s):  
Developing Countries ◽  
Interest Rates ◽  
Strong Evidence ◽  
Budget Deficit ◽  
Current Account Deficit ◽  
Empirical Studies ◽  
Private Investment ◽  
Budget Deficits ◽  
The Impact ◽  
The Relationship

The relationship between budget deficits and macroeconomic variables (such as growth, interest rates, trade deficit, exchange rate, among others) represents one of the most widely debated topics among economists and policy makers in both developed and developing countries. However, the purpose of this paper is to review the extensive literature to such a relationship, concentrating on theoretical debates and empirical studies, in order to derive substantive conclusions, which can be beneficial in the macroeconomics area; policy analysis; or in terms of constructing or developing a macroeconomic model for analyzing the impact of budget deficits on macroeconomic variables. The majority of these studies regress a macroeconomic variable on the deficit variable. These studies are cross-country and utilize time series data. In general the key outcomes from the studies presented in this paper indicated that both the method of financing and the components of government expenditures could have different effects. Therefore, it is crucial for the government to distinguish between consumption and investment expenditures especially when the government is in the process of evaluating the impact of fiscal policy on private investment and output growth or in the process of cutting expenditures to reduce the fiscal imbalances in the country. Even though the overall results from the empirical literature with respect to the impact of public investment on private investment and growth are ambiguous, the bulk of the empirical studies find a significantly negative effect of public consumption expenditure on growth, while the effects of public investment expenditure (such as on education, healthcare) are found to be positive although less robust. The key findings from these studies is important in particular for developing countries to be aware of the importance of government investment expenditures in the area of education, healthcare, infrastructure to long-term economic growth and the benefits from which are an important contributor to welfare and well-being. The key outcome from all of the studies presented in this paper while investigating the relationship between the budget deficit and current account deficit showed strong evidence in both developed and developing countries towards supporting the Keynesian proposition (conventional view) which suggests that an increase in the budget deficit would induce domestic absorption and, hence import expansion, causing a current account deficit. The key findings from the empirical studies investigating the relationship between the budget deficit and interest rates indicated strong evidence towards supporting the Keynesian model of a significant and positive relationship between budget deficits and interest rates. The major outcomes from the empirical studies examining the relationship between budget deficits and inflation showed strong evidence that the budget deficit financed through monetization and a rising money supply could lead to inflation.

THE CURRENT GROWTH EFFECT OF HEALTH TOURISM MARKET DEVELOPMENT IN TURKEY FOR THE EVALUATION ON CURRENT ACCOUNT DEFICIT

2021 ◽  
Vol 6 (11) ◽  
pp. 220-240
Author(s):  
Mustafa IŞIK ◽  
Yakup ÖZSEZER ◽  
Fikriye IŞIK
Keyword(s):  
Current Account ◽  
Current Account Deficit ◽  
National Income ◽  
Tourism Industry ◽  
Added Value ◽  
Growth Effect ◽  
Critical Threshold ◽  
Current Account Balance ◽  
Health Tourism ◽  
Tourism Sector

Tourism sector is one of the major driving forces to develop the Turkish economy which provides the positive contributions with new employment opportunities and the national income and payments. With aid of this developments in economy by tourism, it has also increased the interaction with alternative areas. Health Tourism is also one of the special areas in which provides to the country high added value and foreign currency exchange income. Since the revenue outcome by health tourism is reaching up to 100 billion dollars, the national policy of health tourism enable countries has been undertaken as a high interested point of investment needed area. The critical threshold of the country’s Gross Domestic Product (GDP) is 4 to 5 percent as a current account balance and this deficient outcome in Turkey mostly takes on 5 to 4 percent which is a considered as a critical threshold. Health Tourism is expected to play a key role in bringing the values to the positive levels and therefore the focus is becoming on this area by health sector. Developing countries such as India, Singapore, and Thailand meet their foreign trade deficits with the income where they have obtained from this specific sector and the level of growth in this sector is at certain rate every year. The health Tourism is very crucial and significant sector for such a country Turkey, who has current budget deficit, and it is real economic sense. With Covid-19 crisis, the plans related with health tourism is re-evaluated by the coordination between Turkish Ministry of Health, Ministry of Tourism and Ministry of Economy. Especially, with the infrastructure works carried for public and city hospitals has been capable of providing health tourism services within the organization which is called “USHAŞ (International Health Services)”. The health tourism sector offers significant opportunities for Turkey during Covid-19 pandemic effects on our current account deficit and the decline in economic recovery of our tourism industry and losses. With health tourism created opportunities is already in an increasing trend, to contribute to the country’s economy much faster by increasing target markets with public-private cooperation.

What Explains Current Account Surplus in Korea?

2018 ◽  
Vol 17 (2) ◽  
pp. 70-93
Author(s):  
Chirok Han ◽  
Kwanho Shin
Keyword(s):  
Exchange Rate ◽  
Fiscal Policy ◽  
Current Account ◽  
Current Account Balance ◽  
Budget Deficits ◽  
Current Account Surplus ◽  
Short Run ◽  
The Right ◽  
The Impact ◽  
The Current Account

Since the currency crisis in 1998, Korea has experienced continuous current account surpluses. Recently, the current account surplus increased more rapidly—amounting to 7.7 percent of GDP in 2015. In this paper, we investigate the underlying reasons for the widening of Korea's current account surpluses. We find that the upward trend in Korea's current account surpluses is largely explained by its demographical changes. Other economic variables are only helpful when explaining short run fluctuations in current account balances. Moreover, we show that Korea's current account surplus is expected to disappear by 2042 as it becomes one of the most aged economies in the world. Demographic changes are so powerful that they explain, quite successfully, the current account balance trends of other economies with highly aged populations such as Japan, Germany, Italy, Finland, and Greece. When we add the real exchange rate as an additional explanatory variable, it is statistically significant with the right sign, but the magnitude explained by it is quite limited. For example, to reduce the current account surplus by 1 percentage point, a 12 percent depreciation is needed. If Korea's current exchange rate is undervalued 4 to 12 percent less than the level consistent with fundamentals, it is impossible to reduce Korea's current account surplus to a reasonable level by adjusting the exchange rate alone. Another way to reduce current account surplus is to expand fiscal policies. We find, however, that the impact of fiscal adjustments in reducing current account surplus is even more limited. According to our estimates, reducing the current account surplus by 1 percentage point requires an increase in budget deficits (as a ratio to GDP) of 5 to 6 percentage points. If we allow endogenous movements of exchange rate and fiscal policy, the impact of exchange rate adjustment increases by 1.6 times but that of fiscal policy decreases that it is no longer statistically significant.

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