Dynamic relationship between budget deficit and current account deficit in the light of Nigerian empirical application

Akalpler, Ergin; Panshak, Yohanna

doi:10.1007/s40844-019-00122-8

Cited by 9 publications

(3 citation statements)

References 22 publications

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“…The conventional view of TDH in the current study supports the findings of Aqeel and Nishat ( 2000 ), Hakro ( 2009 ), and partially with the findings of Siddiqui ( 2010 ) in the case of Pakistan. Besides this, the current study confirms the findings of Salvatore ( 2006 ), Ratha ( 2012 ), Endegnanew et al ( 2013 ), Suresh and Tiwari ( 2014 ), Ravinthirakumaran et al ( 2015 ), and very recent studies of Afonso et al ( 2018 ), Bhat and Sharma ( 2018 ), Akalpler and Panshak ( 2019 ), Baharumshah et al ( 2019 ), Banday and Aneja ( 2019 ), Gaysset et al ( 2019 ), and Mohanty ( 2019 ), Ahmad and Aworinde ( 2020 ), Rehman et al ( 2020 ), Rajakaruna et al ( 2021 ), and Bousnina and Gabsi ( 2022 ). However, the study contradicts the findings of reverse causality running from CAB to fiscal balance by the studies of Rauf and Khan ( 2011 ), Saeed and Khan ( 2012 ), Rehman and Saeed ( 2017 ) in the case of Pakistan and the findings of other studies (like Kim & Kim, 2006 ; Marinheiro, 2008 ; Sobrino, 2013 ; and Nikiforos et al, 2015 ) other than Pakistan.…”

Section: Resultssupporting

confidence: 92%

A Dynamic Analysis of the Twin-Deficit Hypothesis: the Case of a Developing Country

Hussain

Hayat

Alam

et al. 2023

Asia-Pac Financ Markets

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The main economic challenge is rising aggregate demand, which leaves the economy short on resources and leads to expanding fiscal and external account deficits. The current study uses autoregressive distributed lag (ARDL) model to evaluate the twin deficit hypothesis in the context of Pakistan in an effort to find an answer to this question. The study uses augmented ARDL, popularized by McNown et al. (Appl Econ 50:1509–1521, 2018) and Sam et al. (Econ Model 80:130–141, 2019), to address the degenerate problems that might arise while applying the ARDL approach. Two separate models were estimated, one with the current account balance as the dependent variable and the other with the balance of trade. In the long run, both models confirm the conventional interpretation of twin deficit hypothesis in Pakistan, with the causality running only from the fiscal deficit to the balance of trade. Other control variables in both models are crucial in understanding the current account balance and balance of trade. According to models, an increase in the exchange rate, as measured by the log of the nominal effective exchange rate, improves both current account and trade balance, verifying the elasticity approach in the long run. The openness of the economy is found to worsen current account balance, and the result is statistically significant. Contrarily, openness has been improved trade balance, but the result is statistically insignificant. To control a large and persistent external deficit, the government has to reduce its fiscal deficit, and such a strategy would be successful when monetary policy is accommodative.

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Section: Resultssupporting

confidence: 92%

A Dynamic Analysis of the Twin-Deficit Hypothesis: the Case of a Developing Country

Hussain

Hayat

Alam

et al. 2023

Asia-Pac Financ Markets

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“…Finally, the structural stability of the estimated model was examined using the CUSUM and CUSUMSQ tests. These tests are applied to the residual elements of the model and, if the graph lies within the 0.05 interval, this signifies that the model is stable (Akalpler & Panshak, 2019). As shown in Figure 1 and Figure 2, the results…”

Section: Diagnostic Testsmentioning

confidence: 91%

A Non-Linear Autoreggresive Distributed Lag Analysis of the Triple Deficit Hypothesis in the Mena Region

Raouf

2020

Asian Economic and Financial Review

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This paper focuses on assessing the validity of the triple deficit hypothesis in fourteen Middle Eastern and Northern African (MENA) countries between 1999 and 2018, using a non-linear autoregressive distributed lag (NARDL) model. Although many studies have used different methods to address this issue, they often conclude that the relationship between the budget deficit, the current account deficit, and the savinginvestment gap is a symmetric relationship. This study claims that it is possible to shed new light on this issue by introducing non-linearity into studies on the relationship between these three deficits using the recently developed NARDL technique. This paper provides evidence for the existence of a non-linear relationship between the current account deficit, budget deficit, and saving-investment gap. It also shows that the triple deficit hypothesis is valid in the long-term. On the contrary, the relationship between external and internal deficits is negative in the short-term, which means that there is a triple divergence. Contribution/Originality: This study contributes to the existing literature by introducing non-linearity into studies of the triple deficit hypothesis. This is the first time that the NARDL model has been used in the analysis of this hypothesis. 1. INTRODUCTION Governments often set goals to increase investment and capital formation, accumulate more savings, decrease consumption, and redistribute resources among different sectors. These objectives can be accomplished by enhancing government spending or cutting taxes. This could reduce the fiscal balance and discourage private investment, which would have a negative effect on economic growth (Bhat & Sharma, 2018). Not only do many countries all over the world suffer from a budget deficit, they have also witnessed current account deficit as well. The external and internal positions of any country can be determined by these deficits. Countries that suffer from both long-term budget deficits and current account deficits face multiple significant and long-lasting problems that will affect their economic growth (Bayramoğlu & Öztürk, 2018). A current account deficit may lead to a decline in a country's competitiveness, an outflow of investment to other countries, and a reduction of foreign reserves (Ahmad, Aworinde, & Martin, 2015). Economists have tried to find the relationship between the budget deficit representing adjustments in fiscal policy and the current account deficit representing the balance of the nation's foreign transactions.

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“…Similarly, using VECM in Bangladesh, Alam et al, (2020) reveal that exchange rate, inflation, trade and money supply have positive effects on budget deficit in the long run while negative effects have been identified in the short run. Akalpler and Panshak (2019) examines the link between Nigeria's current account deficit and its budget deficit using annual time series data spanning 1980 to 2016. Autoregressive Distributed Lag (ARDL) and Granger causality tests are used.…”

Section: Literature Reviewmentioning

confidence: 99%

Determinants of Budget Deficit in Nigeria

Shehu

Adamu

2021

JIBE

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This paper investigates the factors governing the determination of budget deficit in Nigeria from 1981q1 through 2016q4. Our methodology is based on Johansen cointegration and Vector Error Correction model (VECM) approach. The result from the Johansen cointegration test suggests one cointegrating vector, which indicates the existence of a long run cointegrating relationship. Evidence from the long run and short run parameters suggest that exchange rate, interest rate and one year lag of budget deficit are the major determinants of budget deficit. Therefore, to achieve a realistic fiscal surplus, the government should determine a high level of accountability in its fiscal operations. In addition, any fiscal surplus should be channeled into productive investments to diversify the economy and reduce the likelihood of potential budget deficits.

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Dynamic relationship between budget deficit and current account deficit in the light of Nigerian empirical application

Cited by 9 publications

References 22 publications

A Dynamic Analysis of the Twin-Deficit Hypothesis: the Case of a Developing Country

A Dynamic Analysis of the Twin-Deficit Hypothesis: the Case of a Developing Country

A Non-Linear Autoreggresive Distributed Lag Analysis of the Triple Deficit Hypothesis in the Mena Region

Determinants of Budget Deficit in Nigeria

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