Has the Accession of Greece in the EU Influenced the Dynamics of the Country’s “Twin Deficits”? An Empirical Investigation

Constantinos Katrakilidis and Trachanas Emmanouil

European Research Studies Journal, 2011, vol. XIV, issue 1, 45-54

Abstract: This paper investigates the existence of possible causal linkages between the internal and external imbalances of the Greek economy, over the period 1960-2007, as well as the directions of the detected causal effects. Actually, it tests empirically the validity and rationale of the “twin deficits” hypothesis, taking into consideration the impact of the accession of Greece in the European Economic Community in 1981, which constitutes a great institutional change. By means of the ARDL cointegration methodology, error-correction modeling and Granger causality, we find evidence in favor of the “twin deficits hypothesis” for the Greek case over the pre-accession period (1960-1980), with causality running from the budget deficit to the trade deficit. However, over the post-accession period (1981-2007) the causal relationship is reversed, indicating changes in the linking mechanism of the two deficits and providing useful inferences for the national economic policy.

Keywords: Budget and Trade Deficits; Twin Deficits Hypothesis; Co-integration; Greek Economy (1960-2007) (search for similar items in EconPapers)
JEL-codes: C22 F32 F41 H62 (search for similar items in EconPapers)
Date: 2011
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:ers:journl:v:xiv:y:2011:i:1:p:45-54

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