We re-examine the causality between the twin deficits by testing for Granger non-causality between BD and CAD based on extended causality tests initially developed by Toda and Yamamoto (1995). Using international data from a sample of twenty developed and developing countries, we find evidence of causality (unidirectional or bi-directional) between the twin deficits for some developing countries. However, the results for developed countries are less persuasive. The empirical findings of this study are robust to alternative and independent causality testing procedures. Copyright Springer-Verlag 2004Granger non-causality, likelihood ratio, wald, and Lagrange multiplier tests, alternative tests, twin deficits, international evidence, C20, C22,

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In this paper, we extend the works by [1][2][3][4][5] accounting for autocorrelation both in the time specific effect as well as the remainder error term. Several transformations are proposed to circumvent the double autocorrelation problem in some specific cases. Estimation procedures are then derived.

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