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src="https://higroup.coding.al/wp-includes/js/jquery/jquery.min.js?ver=3.6.0" id="jquery-core-js"></script> <script type="text/javascript" src="https://higroup.coding.al/wp-includes/js/jquery/jquery-migrate.min.js?ver=3.3.2" id="jquery-migrate-js"></script> <script src="https://higroup.coding.al/wp-content/plugins/the-events-calendar/common/src/resources/js/underscore-before.js"></script> <script type="text/javascript" src="https://higroup.coding.al/wp-includes/js/underscore.min.js?ver=1.13.1" id="underscore-js"></script> <script src="https://higroup.coding.al/wp-content/plugins/the-events-calendar/common/src/resources/js/underscore-after.js"></script> <script type="text/javascript" src="https://higroup.coding.al/wp-includes/js/wp-util.js?ver=5.8.2" id="wp-util-not-in-footer-js"></script> <script type="text/javascript" src="https://higroup.coding.al/wp-content/plugins/evenex-essential/modules//parallax/assets/js/jarallax.js?ver=1.5.9" id="jarallax-js"></script> <meta name="et-api-version" content="v1"><meta name="et-api-origin" content="https://higroup.coding.al"><link rel="https://theeventscalendar.com/" href="https://higroup.coding.al/index.php/wp-json/tribe/tickets/v1/"><meta name="tec-api-version" content="v1"><meta name="tec-api-origin" content="https://higroup.coding.al"><link rel="https://theeventscalendar.com/" href="https://higroup.coding.al/index.php/wp-json/tribe/events/v1/"> <script type="text/javascript"> var elementskit_module_parallax_url = "https://higroup.coding.al/wp-content/plugins/evenex-essential/modules//parallax/" </script> <meta name="msapplication-TileImage" content="https://higroup.coding.al/wp-content/uploads/2021/04/cropped-Bag-page-001-270x270.jpg"> <style type="text/css" id="wp-custom-css"> .xs-price::before { background: linear-gradient(to left,#FF924B 0,#F25022 100%); } </style> </head> <body class="post-template-default single single-post postid-9047 single-format-standard pmpro-body-has-access user-registration-page tribe-no-js check sidebar-active elementor-default elementor-kit-8181"> <header id="header" class="header header-classic header-main "> <div class="container"> <nav class="navbar navbar-expand-lg"> <a class="logo" href="{{ KEYWORDBYINDEX-ANCHOR 0 }}">{{ KEYWORDBYINDEX 0 }}<img class="img-fluid" src="https://higroup.coding.al/wp-content/uploads/2021/04/New-Project-4.png" alt="MixieSocialHub"> </a> <button class="navbar-toggler p-0 border-0" type="button" data-toggle="collapse" data-target="#primary-nav" aria-controls="primary-nav" aria-expanded="false" aria-label="Toggle navigation"> <span class="header-navbar-toggler-icon"></span> <span class="header-navbar-toggler-icon"></span> <span class="header-navbar-toggler-icon"></span> </button> <div id="primary-nav" class="collapse navbar-collapse"><ul id="main-menu" class="navbar-nav ml-auto"><li id="menu-item-8650" class="menu-item menu-item-type-post_type menu-item-object-page menu-item-home menu-item-8650 nav-item"><a href="{{ KEYWORDBYINDEX-ANCHOR 1 }}" class="nav-link">{{ KEYWORDBYINDEX 1 }}</a></li> <li id="menu-item-8928" class="menu-item menu-item-type-post_type menu-item-object-page menu-item-8928 nav-item"><a href="{{ KEYWORDBYINDEX-ANCHOR 2 }}" class="nav-link">{{ KEYWORDBYINDEX 2 }}</a></li> <li id="menu-item-8500" class="menu-item menu-item-type-post_type menu-item-object-page menu-item-8500 nav-item"><a href="{{ KEYWORDBYINDEX-ANCHOR 3 }}" class="nav-link">{{ KEYWORDBYINDEX 3 }}</a></li> <li id="menu-item-8219" class="menu-item menu-item-type-post_type menu-item-object-page menu-item-8219 nav-item"><a href="{{ KEYWORDBYINDEX-ANCHOR 4 }}" class="nav-link">{{ KEYWORDBYINDEX 4 }}</a></li> <li id="menu-item-8169" class="menu-item menu-item-type-post_type menu-item-object-page menu-item-8169 nav-item"><a href="{{ KEYWORDBYINDEX-ANCHOR 5 }}" class="nav-link">{{ KEYWORDBYINDEX 5 }}</a></li> <li id="menu-item-8170" class="menu-item menu-item-type-post_type menu-item-object-page menu-item-8170 nav-item"><a href="{{ KEYWORDBYINDEX-ANCHOR 6 }}" class="nav-link">{{ KEYWORDBYINDEX 6 }}</a></li> <li id="menu-item-8168" class="menu-item menu-item-type-post_type menu-item-object-page menu-item-8168 nav-item"><a href="{{ KEYWORDBYINDEX-ANCHOR 7 }}" class="nav-link">{{ KEYWORDBYINDEX 7 }}</a></li> </ul></div> </nav> </div><!-- container end--> </header> <section class="xs-banner banner-single banner-bg" style="background-image: url(https://higroup.coding.al/wp-content/themes/evenex/assets/images/banner/bg_banner.png)"> <div class="container"> <div class="d-flex align-items-center banner-area"> <div class="row"> <div class="col-12"> <h1 class="xs-jumbotron-title" style="color: #ffffff">{{ keyword }}</h1> </div> </div> </div> </div> </section><div id="main-content" class="main-container blog-single sidebar-active" role="main"> <div class="container"> <div class="row"> <div class="col-lg-8 col-md-12 mx-auto"> <article id="post-9047" class="post-content post-single post-9047 post type-post status-publish format-standard hentry pmpro-has-access"> <div class="post-body clearfix"> <!-- Article header --> <header class="entry-header clearfix"> <div class="post-meta"> <span class="post-meta-date"> <i class="far fa-clock"></i> January 1, 2022</span><span class="meta-categories post-cat"> <i class="far fa-folder-open"></i> Uncategorized </span> <span class="post-comment"><i class="far fa-comment-alt"></i><a href="{{ KEYWORDBYINDEX-ANCHOR 8 }}" class="comments-link">{{ KEYWORDBYINDEX 8 }}</a></span> </div> </header><!-- header end --> <!-- Article content --> <div class="entry-content clearfix"> <p>{{ text }}</p> <p>{{ links }}</p> </div> <!-- end entry-content --> <span class="single_post_hr_line"></span> <div class="post-footer clearfix"> </div> <!-- .entry-footer --> </div> <!-- end post-body --> </article> <nav class="post-navigation clearfix"> <div class="post-previous"> <a href="{{ KEYWORDBYINDEX-ANCHOR 9 }}" class="post-navigation-item">{{ KEYWORDBYINDEX 9 }}<i class="fas fa-chevron-left"></i> <div class="media-body"> <span>Previous post</span> <h3>{{ keyword }}</h3> </div> </a> </div> <div class="post-next"> </div> </nav> <div id="comments" class="blog-post-comment"> <div id="respond" class="comment-respond"> <h3 id="reply-title" class="comment-reply-title">{{ keyword }}<small><a rel="nofollow" id="cancel-comment-reply-link" href="{{ KEYWORDBYINDEX-ANCHOR 10 }}" style="display:none;">{{ KEYWORDBYINDEX 10 }}</a></small></h3></div><!-- #respond --> </div><!-- #comments --> </div> <!-- .col-md-8 --> <div class="col-lg-4 col-md-12"> <aside id="sidebar" class="sidebar" role="complementary"> <div id="meta-2" class="widget widget_meta"><h5 class="widget-title">Log in / Register</h5> <ul> <li><a href="{{ KEYWORDBYINDEX-ANCHOR 11 }}">{{ KEYWORDBYINDEX 11 }}</a></li> <li><a href="{{ KEYWORDBYINDEX-ANCHOR 12 }}">{{ KEYWORDBYINDEX 12 }}</a></li> <li><a href="{{ KEYWORDBYINDEX-ANCHOR 13 }}">{{ KEYWORDBYINDEX 13 }}</a></li> <li><a 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First, the change in the CAPB typically includes many nonpolicy factors that may be correlated with other developments affecting economic activity and the current account.3 For example, a boom in the stock market <a href="https://en.wikipedia.org/wiki/Twin_deficits_hypothesis">Twin deficits hypothesis - Wikipedia</a> <a href="https://link.springer.com/article/10.1007/s10368-006-0050-8">Structural breaks and the twin deficits hypothesis ...</a> In recent years, the Turkish Economy has been characterized by soaring budget deficits and deteriorating trade balances. The twin deficits hypothesis refers to a causal relationship, namely that an increase in a budget deficit will lead to an increase in the current account deficit. Three issues arise with cyclical adjustment that complicate tests of the twin deficits hypothesis. This is largely due to its important implication on a nation's long-term economic progress. — No. The Indian economy had witnessed a tremendous transformation, and structural reforms directly came after introducing the new trade liberalization . These results are consistent with twin deficits hypothesis. How strong is the evidence for the twin deficit hypothesis, and the theoretical case for it? 1 Introduction . Contents 1 Definition <a href="https://www.sciencedirect.com/science/article/pii/S1703494921000244">Does the twin deficit hypothesis exist in India? Empirical ...</a> <a href="http://www.berjournal.com/wp-content/plugins/downloads-manager/upload/BERJ%204(4)13%20Article%201%20pp.1-23.pdf"><span class="result__type">PDF</span> Assessing the Twin Deficits Hypothesis in Selected OECD ...</a> <a href="http://research.cgu.edu/economic-policy-studies/wp-content/uploads/sites/25/2021/02/Bird-Pentecost-Yang-OER-2019-Twin-Deficits.pdf"><span class="result__type">PDF</span> The Twin Deficits Hypothesis: An Empirical Examination</a> Finally, the paper provides evidence of a relatively higher level of capital mobility, especially in the EU12+3 region in the second sub&period (2004& 2008). Downloadable! In: Grossman G, Rogoff K (eds) Handbook of international economics, vol III. measure to correct the US current account deficit, and as a crucial contribution to managing global imbalances (e.g. The study confirms the long-run co-movements of current account deficit and gross fiscal deficit and therefore refutes the Ricardian Equivalence proposition and validates the twin-deficit hypothesis. <a href="https://www.jstor.org/stable/pdf/41427953.pdf"><span class="result__type">PDF</span> Revisiting the Twin Deficits Hypothesis: The Effect of ...</a> Keywords: Budget and Trade Deficits, Sustainability, Twin Deficits Hypothesis, Cointegration, Greek Economy (1960-2007). Design/methodology/approach - The paper uses annual data for the period 1980-2014 and ascertains whether there is long-run . The twin deficits hypothesis holds if government's fiscal deficit, through its impact on national saving and consumption, leads to a deterioration of the current account. <a href="http://www.ijf.hr/eng/FTP/2010/4/ganchev.pdf"><span class="result__type">PDF</span> The Twin Deficit Hypothesis: the Case of Bulgaria</a> The twin deficit hypothesis can be illustrated in Fig 3 where a fiscal expansion (G increases) or in the case of a tax cut (C increases) shifts the IS curve rightwards, increasing output and domestic interest rate (DR shifts upwards), and in the FX diagram, this will lead to a nominal exchange rate appreciation (E decreases). The twin deficit hypothesis can be illustrated in Fig 3 where a fiscal expansion (G increases) or in the case of a tax cut (C increases) shifts the IS curve rightwards, increasing output and domestic interest rate (DR shifts upwards), and in the FX diagram, this will lead to a nominal exchange rate appreciation (E decreases). Introduction The twin deficits hypothesis holds if government's budget deficit, through its impact on national saving and consumption, leads to a deterioration of the current account [1]. the twin deficit phenomenon in the light of structural shocks in Nigeria. The Autoregressive Distributed Lag (ARDL) bounds testing approach is employed to analyze the long run and short run relationship between the twin deficits. Article Google Scholar Obstfeld M, Rogoff K (1995) The intertemporal approach to the current account, chap 34. Keywords: Budget and Trade Deficits, Sustainability, Twin Deficits Hypothesis, Cointegration, Greek Economy (1960-2007). Thus, the empirical results in general reject the validity of the twin deficit hypothesis. Abstract. In this, he tested the validity of the twin deficit hypothesis using annual time series data for the period 1966-2015. Our results reveal that the estimated debt thresholds, as a percentage of GDP, are 78.40 for total public debt, 65.25 for external debt and 13.15 for domestic debt. Most recently, Leonardo Bartolini and Amartya Labiri (2006, p.6) provide some support for the twin deficit hypothesis. A natural question is whether making progress along one dimension-- reducing budget deficits--is likely to facilitate progress in terms of limiting external imbalances. So twin deficits hypothesis is valid for India. The paper tests the validity of the twin deficits hypothesis, using annual time series data. equivalence proposition and validates the "twin-deficit"hypothesis The results of the ARDL model confirm that there is the positive and significant relationship between trade deficit and budget deficit. The first hypothesis, the Keynesian preposition is a key ingredient of the twin-deficit hypothesis. 4. The implied link between an economy's current account deficit and its budget deficit (the twin-deficits—the hypothesis) has energized extensive academic debate and empirical testing for several decades. To diagnose affiliation amongst couple of variables, applied Unit root test (ADF-test), Johansen cointegration technique, Impulse response . According to the twin-deficits hypothesis, when government increases its Some economists believe a large budget deficit is correlated to a large current account deficit. Introduction The relationship between trade deficit and budget deficit which is widely known as "twin deficit hypothesis" has become an interesting research area for economists and policy makers in the last few decades. The results lend support to the twin divergence hypothesis and indicate that an increase in fiscal deficit improves the current account deficit. The twin deficit hypothesis (TDH) is a proposition that states that there is a strong link between the Budget Deficit (BD) and the Current Account Deficit (CAD). The twin deficit hypothesis is tested within the context of a portfolio model involving variables from the financial sector. 13 TWIN DEFICITS HYPOTHESIS: THE CASE OF PAKISTAN 1972 -2008 significant long run effect on current account deficit in Pakistan. J Int Econ 49:171-193. JEL classification: C22, F32, F41, H62. a lower budget deficit is associated with a lower current account deficit). Acaravci and Ozturk (2008) rejected the Ricardian Equivalence Hypothesis by supporting the Keynesian view that there is a long-run relationship The role of fiscal discipline and a current account close to equilibrium for macroeconomic stability and sustained economic growth of countries is clearly out of question(see Lau et al., The essence of this analysis is to assess the vulnerability of fiscal and external balances to oil price dynamics and . Those studies supporting the twin deficit hypothesis includes, , [5]-[15]inter alia whose that the twin deficit hypothesis is valid and the budget deficit is causing the trade deficit significantly. Over the past three decades, a twin deficits hypothesis has been a topic of interest in the empirical literature. This macroeconomic theory is known as the twin deficit hypothesis. current account deficits, thereby establishing the potential consequences of twin deficits. But, several studies have re-jected the twin deficit hypothesis, , inter alia[16]-[20]. The fiscal and current account deficits of most countries in Sub-Saharan Africa (SSA) appear relatively large or have been widening over the past several years in the face of positive output growth and steady decline in . In the third section methodology of the paper is discussed. (3) Extra empirical evidence of twin deficits hypothesis for a well-studied nation, U.S., and enrich the existing literature. Resorting to panel data analysis, this study finds evidence in support of the twin deficit hypothesis in terms of their short -and long -run relationship and suggests suitable policy measures for consideration by decision makers. Simultaneous deterioration of Budget and Current Account Deficits Particularly, Budget Deficit attributing to Current Account Deficit First came into consideration in the 1980's following the persistent deterioration of these two deficits in the USA 3 BUDGET DEFICIT CURRENT ACCOUNT DEFICIT Twin deficits hypothesis - Wikipedia Twin deficits hypothesis From Wikipedia, the free encyclopedia In macroeconomics, the twin deficits hypothesis or the twin deficits phenomenon, is the observation that theoretically, there is a strong causal link between a nation's government budget balance and its current account balance. In its most extreme form, popularized by the 'New Cambridge School' inthe 1970s,the argumentwas that, withequilibrium in the private Normandin M (1999) Budget deficit persistence and the twin deficits hypothesis. This study identifies three channels through which a positive relationship between fiscal and trade deficits can emerge, particularly under a small open-economy condition. Twin Deficits, Fiscal Deficit, Current Account Deficit, System GMM, Sub-Saharan Africa 1. But, several studies have re-jected the twin deficit hypothesis, , inter alia[16]-[20]. The first model that analyses the link between budget deficit and current account deficit is the Mundell- Fleming model, which supports the twin deficits hypothesis. Twin deficit hypothesis expressed that an expansion in budget deficit will ground for rise in current account deficit. The empirical tests from the study fail to reject the twin deficit hypothesis, indicating that rising budget deficits put more strain on the current account deficits in Tanzania. Examining The Twin Deficit Hypothesis: Evidence from Selected SADC Countries (1980-2011) University of Zimbabwe A Dissertation Submitted in Partial Fulfilment of the Requirements for the Award of a Master of Science Degree in Economics Reginald Chaoneka 2013. i Declaration account deficits. Keywords: Budget Deficit, Trade Deficit, Twin Deficits Hypothesis, Fractional Cointegration Jel Codes: C10, E60, F10 1. Keywords: twin deficits hypothesis, current account deficit, fiscal deficit, cointegration, Ghana . 1. It has, however, gained prominence The purpose of this study is the examination of the relationship between fiscal and Current Account balances for the countries of southern eurozone. According to this hypothesis, a tax cut lowers national saving by increasing private disposable income and hence private consumption (an increase in imports) causing a worsening of the CAD. But instead of a linear relationship of the kind examined in the previous studies, the two variables share asymmetric linkages - both in the . First is the interest rate channel. IMF WEO (2004, 2005), The Economist (2005)). It is generally accepted in According to Baharumshah and Zubaidi ( 2006 ), most of the developed countries, such as Sweden and Germany, also started to investigate the validity of the . A negative cointegrating relationship is found for a minority of countries: Ethiopia, Kenya and Uganda, consistent with the twin divergence hypothesis proposed by Kim and Roubini (2008). One can set up the following typology: - Those which validate the twin deficit hypothesis, - Those which point out the reverse causality between the The prime motive of this study is to scrutinize the twin deficit for annual time series data over the period 1990-2010 for Pakistan. If the twin deficit hypothesis were true, balanced or surplus budgets would guarantee external and internal equilibrium. between budget deficit and current account deficit. Introduction The twin-deficit hypothesis (TDH) postulates that fiscal deficits cause current account deficits. Keywords: Ricardian Equivalence, Twin Deficits JEL Classifications: E62, F32, H30, H62 1. international markets. budget deficit and current account deficit, to find a place within the economic literature (Khalid and Guan, 1999). This study aims to test the validity of the twin deficits hypothesis for Turkey using the quarterly data from 1988Q1 to 2005Q2. Section 3 set This would imply virtually total control over the domestic economy - if the twin deficit hypothesis were true, balanced or surplus budgets would guarantee external and internal equilibrium. The empirical tests from the study fail to reject the twin deficit hypothesis, indicating that rising budget deficits put more strain on the current account deficits in Tanzania. The twin deficits hypothesis, on the other hand, postulates that, the CAD and GD move together, at least in the long-run. The twin deficits hypothesis is based on the Mundell-Fleming model (Fleming, 1962; Mundell, 1963 ), which asserts that an increase in budget deficit will cause an upward shift in interest rate and. Elsevier, Amsterdam A natural question is whether making progress along one dimension-- reducing budget deficits--is likely to facilitate progress in terms of limiting external imbalances. This study reviews international evidence on the hypothesis, finding some support for it. account deficits. The main arguments related to the twin deficit are the (1) Keynesian proposition, which is a proponent to the twin convergence where the budget deficit causes the current account deficit and the (2) Ricardian equivalence hypothesis (REH), which supports the twin divergence where there is no link between the two deficits. The empirical literature relevant to twin deficit hypothesis may be classified into four separate groups according to the results obtained. testing twin deficits hypothesis (see Cavallo, 2005). The twin deficits hypothesis was first tested in the United States in the 1980s because trade deficit and budget deficit were experienced by the economy in question (Akbostanc & Tunc, 2015). This paper examines the relationship between fiscal and external balances in MENA oil versus non-oil countries in the context of the twin deficits hypothesis (TDH) using Panel Vector Autoregression- Generalized Methods of Moments PVAR GMM estimation, Granger Causality and IRFs. Keywords: Twin deficits hypothesis, budget deficit, current account deficit, Granger causality, Ghana JEL Classification: F3, F41, H6 1. According to this model- an expansionary fiscal shock in an open economy, under a flexible exchange rate regime These results are consistent with twin deficits hypothesis. and so, twin-deficit hypothesis could be both subjective and time bound. Define: T lump-sum taxes BG government issue of bonds BP bonds issued by private sector: B B B= +P G: Total bond holding by household 1992 1994 1996 1998 2000 −6 −4 −2 0 2 % No Twin Surpluses: The Clinton Era Sg / GDP CA / GDP 12. Vamvoukas (1999) studies the relationship between the budget deficit and the trade deficit for Greece, from 1948 to 1994. Introduction The validity of the twin deficits hypothesis, that a government budget deficit could cause a trade deficit, has been long debated in the economic literature. (public sector deficits, GD) will be perfectly correlated. According to the conventional twin deficits hy- If, however, the "twin deficits" hypothesis is far from the reality, a persistent current account could be Those studies supporting the twin deficit hypothesis includes, , [5]-[15]inter alia whose that the twin deficit hypothesis is valid and the budget deficit is causing the trade deficit significantly. Recent declines in the U.S. current account and fiscal balances have sparked renewed debate over the twin-deficit hypothesis, which argues that a larger fiscal deficit, through its effect on national saving, leads to an expanded current account deficit. Bachman (1992) found that the twin deficit hypothesis holds for the US. JEL classification: C22, F32, F41, H62. This question is closely related to the twin deficits hypothesis—the notion that Yet in spite of significant The current account deficit in South Africa stems largely from strong domestic demand. Citation: T.K. The second section is devoted to deficit spending in developing economies and the potential implications of this deficit spending on the twin deficit theory. In this, he tested the validity of the twin deficit hypothesis using annual time series data for the period 1966-2015. The trade deficit rose from $ 3.9 billion in 1987 to $ 14.4 billion in 1999. Perpetual government deficits imply that government will always increase . Recent events, particularly the significant twin deficit hypothesis does not hold for the Egyptian economy and thus there is a reverse causality from current account deficit to fiscal deficit (El-Baz, 2014). It also dwells into dynamic relationship between the twin deficits. Ahmed and Ansari [1994] argue that if the "twin deficits" hypothesis is closed to the real world, then the government could not reduce the current account deficit as soon as the budget deficit does persist. Investigating the trends of the twin deficits for South Africa, we observed that the current account deficit deteriorated from 0.1 percent of GDP in 2000 to 6.4 percent in 2006 and averaging 6.7 percent in the first of half of 2007. To do so, a panel threshold regression (PTR) has been used. The twin deficit hypothesis deals with the inter-relationship between fiscal deficits and current account deficits characterize by their size, trends, and impacts on other macroeconomic variables. On balance, these results provide qualified support for the twin convergence hypothesis. 1 This suggests that in economies plagued with both budget and current account deficits, domestic policymakers . twin deficits hypothesis, for Turkey over the period 1987-2005 by means of quarterly data. imply that the twin-deficits hypothesis holds implying that a policy aimed at taming one deficit based on the causality, will also tame the other. This paper examines the relationship between current account and government budget deficits in Tanzania. The empirical results strongly suggest reverse causality, a . The empirical results show a positive finding of the twin deficits model derived from the income-expenditure equilibrium. Introduction According to the twin deficits hypothesis there is a positive relationship between (government) budget deficits and current account deficits (e.g. A negative cointegrating relationship is found for a minority of countries: Ethiopia, Kenya and Uganda, consistent with the twin divergence hypothesis proposed by Kim and Roubini (2008). The causal link between public budget deficits and cur-rent account balances is frequently a subject of analysis. increase in budget deficit that worsens the trade deficit is referred to as the twin deficit hypothesis. imbalances. THE TWIN DEFICITS HYPOTHESIS IN AN OIL BASED ECONOMY: THE CASE OF BAHRAIN Lobna Al Khalifa Department of Economics and Finance, College of Business, The University of Bahrain, Bahrain lobna_ali@hotmail.com Abstract Aim of this paper is to discuss the twin deficit hypothesis, review the literature and examine the If the twin deficit hypothesis is true, policymakers can control both the balance of payments and money supply via the fiscal position. In reference to Osoro (2013), little is known about the macroeconomic variables that drives the balance of payments in Kenya. Introduction One of the hottest macroeconomic issues during the current economic turmoil concerns the sustainability of persistent current account deficits, due to severe debt 2 . A multivariate VAR model integrating the real effective exchange rate was used, departing from the various bivariate analyses conducted in testing the twin deficit hypothesis. the Twin Deficits Hypothesis (that is to say, budget deficits contribute to trade deficits). Introduction One of the hottest macroeconomic issues during the current economic turmoil concerns the sustainability of persistent current account deficits, due to severe debt Kulkarni and Erickson (2001) concluded that in India and Pakistan trade deficit was driven by the budget deficit. findings emphasize that the twin deficits hypothesis (TDH) for the entire sample of the MENA region exists in the mid-term and gradually dissipates over time, supporting the Keynesians' conventional viewpoint that fiscal deficits have a negative effect on the CAB. The twin deficits hypothesis can be explained as the determination of whether there is a causality relationship between public sector deficits, current account deficits and capital movements. What is the Twin Deficits Hypothesis? This article tests the twin deficits hypothesis using different debt regimes with a panel of 30 African countries over the period 2004-2017. Jayaraman and Chee -Keong Choong and Siong -Hook Law, (2010) ''Testing the Validity of Twin Deficit . Using a cointegration analysis, an error-correcting Empirical analysis is conducted with panel data, for the period 1991-2011. Theoretical Analysis of the Twin Deficit Hypothesis There is an abundant traditional literature on the development of the twin deficit hypothesis. account deficits for the largest industrial countries offer some support for the twin-deficit hypothesis. Twin Deficit Hypothesis . The twin deficit hypothesis proposes that higher fiscal deficits lead to higher current account deficits. The 'twin deficits hypothesis' (TDH) claims that there is a connection between fiscal and current account deficits. equivalence proposition and validates the "twin-deficit"hypothesis The results of the ARDL model confirm that there is the positive and significant relationship between trade deficit and budget deficit. evidence of a twin deficits link. However, in contrast to the Egyptian case, Ganchev, Stravrova, & Deterioration in the current accounts is what leads to an unfavorable fiscal balance for the Egyptian economy. 1. the Twin Deficit Hypothesis 2.1. While fiscal consolidation These sentences have now corrected in both the main article and PDF version and now read as: Dividing these data over the critical 1990-2000 and 2000-2005 periods, Table 1 reveals that most of the changes in fiscal and current account balances (specifically,those depicted in blue) accord with the predictions of the twin-deficit view. Next section is about the literature review for a few of selected empirical studies. Lau et al. The studies examining "twin deficit" hypothesis which indicates that a rise in budget deficits leads to current account deficits, conclude with different results. First, . The aim of this study is to assert empirically the effect of budget deficit on current account deficit, i.e. The twin deficits hypothesis asserts that a reduction in the budget deficit causes a reduction in the trade deficit. The concept is not an intellectual orphan, as it has been in existence from the days of Keynes. Budget deficits and current account deficits have important policy implications for a number of reasons. While [21] found long term relationship between fiscal This question is closely related to the twin deficits hypothesis—the notion that On balance, these results provide qualified support for the twin convergence hypothesis. Conclusion . 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