An Empirical Investigation of Budget and Trade Deficits: The Case of Bangladesh

Asrafuzzaman Asrafuzzaman (), Amit Roy and Sanat Das Gupta
Additional contact information
Amit Roy: Graduate Student, Department of Economics, Shahjalal University of Science and Technology, Sylhet-3114, Bangladesh
Sanat Das Gupta: Graduate Student, Department of Economics, Shahjalal University of Science and Technology, Sylhet-3114, Bangladesh

International Journal of Economics and Financial Issues, 2013, vol. 3, issue 3, 570-579

Abstract: This study attempts to investigate the evidence of twin deficits hypothesis, that is, the simultaneous existence of fiscal and foreign trade account deficits in Bangladesh. In this regard this paper examines the causal relationship between budget deficit and trade deficit based on annual time series data from 1972-73 to 2011-12 fiscal year. Applying the VAR and Granger Causality after successfully running ADF and PP unit root test and cointegration rank test this paper reveals that budget deficit Granger cause trade deficit and vice versa but the relationship does not stand for the long-run dynamics. In fact, the long run relationship depends on overall macroeconomic environment and performances of other relevant variables. Policy implication is that Government should reduce budget deficit to improve the trade account balance.

Keywords: Twin deficits; Bangladesh; Budget deficit; Trade deficit; Granger causality; VAR (search for similar items in EconPapers)
JEL-codes: F11 F32 F41 H62 (search for similar items in EconPapers)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

Downloads: (external link)
http://www.econjournals.com/index.php/ijefi/article/download/282/pdf (application/pdf)
http://www.econjournals.com/index.php/ijefi/article/view/282/pdf (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eco:journ1:2013-03-2

Access Statistics for this article

International Journal of Economics and Financial Issues is currently edited by Ilhan Ozturk

More articles in International Journal of Economics and Financial Issues from Econjournals
Bibliographic data for series maintained by Ilhan Ozturk ().