Budget-current account deficits nexus in Malaysia
Evan Lau () and
Kim Lee Tan
MPRA Paper from University Library of Munich, Germany
The purpose of this study is to contribute further on the twin deficits debate in a developing economy. The data for Malaysia over four decades is used as a case study. Empirical result obtained from the Johansen-Juselius (1990) cointegration test indicates that budget deficit and current account deficit do not contain common stochastic trend in the long run. However, the findings from the Granger non-causality test by Toda-Yamamoto (1995) support the Summer’s (1988) reverse causation proposition. This implies that a unidirectional causality running from current account to budgetary variable where the deterioration in current account deficit could worsen the budgetary position in the case of Malaysia.
Keywords: Twin deficits; Fiscal policy; Toda-Yamamoto test (search for similar items in EconPapers)
JEL-codes: E62 C32 H62 (search for similar items in EconPapers)
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Published in The Journal of Global Business Management 2.2(2006): pp. 126-135
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Persistent link: http://EconPapers.repec.org/RePEc:pra:mprapa:37677
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