On the twin deficits hypothesis and the import intensity in transition countries

Hubert Gabrisch

International Economics and Economic Policy, 2015, vol. 12, issue 2, 205-220

Abstract: This article aims to explain the increasing deficits in the trade and current account balances of three post-transition countries–Czech Republic, Hungary, and Poland–by testing two hypotheses: the twin deficit hypothesis and increasing import intensity of export production. The method uses co-integration and related techniques to test for a long-run causal relationship between the fiscal and external deficits of three post-transition countries in Central and Eastern Europe. In addition, an import intensity model is tested by applying OLS and GMM. All the results reject the Twin Deficits Hypothesis. Instead, the results demonstrate that specific transition factors such as net capital flows and, probably, a high import intensity of exports affect the trade balance. Copyright Springer-Verlag Berlin Heidelberg 2015

Keywords: Twin deficits; Import intensity; Transition countries; E62; F41; H62 (search for similar items in EconPapers)
Date: 2015
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DOI: 10.1007/s10368-014-0272-0

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