Twin Deficits Hypothesis in SEACEN Countries: A Panel Data Analysis of Relationships between Public Budget and Current Account Deficits

14 Pages Posted: 23 Aug 2008

See all articles by Evan Lau

Evan Lau

Universiti Malaysia Sarawak (UNIMAS)

Ahmad Zubaidi Baharumshah

University Putra Malaysia - Faculty of Economics and Management

Date Written: August 20, 2008

Abstract

In this paper, the twin deficits hypothesis was examined using the panel data of nine SEACEN countries. Empirical results provide evidence to support the view that Asian budget deficit causes current account deficit directly as well as indirectly. From policy perspectives, 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.

Keywords: Twin Deficits, Vicious or Virtuous Circle, Panel analysis, SEACEN countries

JEL Classification: C23, C51, F32, H60, H62

Suggested Citation

Lau, Evan and Baharumshah, Ahmad Zubaidi, Twin Deficits Hypothesis in SEACEN Countries: A Panel Data Analysis of Relationships between Public Budget and Current Account Deficits (August 20, 2008). Applied Econometrics and International Development, Vol. 6, No. 2, 2006, Available at SSRN: https://ssrn.com/abstract=1242122

Evan Lau (Contact Author)

Universiti Malaysia Sarawak (UNIMAS) ( email )

Kota Samarahan, Sarawak 94300
Malaysia

Ahmad Zubaidi Baharumshah

University Putra Malaysia - Faculty of Economics and Management ( email )

Serdang, Selangor 43400
Malaysia

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