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

Ergin Akalpler () and Yohanna Panshak ()
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Ergin Akalpler: Near East University
Yohanna Panshak: Near East University

Evolutionary and Institutional Economics Review, 2019, vol. 16, issue 1, 159-179

Abstract: Abstract This research empirically investigates the link between current account deficit and the budget deficit for Nigeria with the use of annual time series spanning 1980–2016. These deficits have significant implications on the country’s macroeconomic stability and overall growth. The research makes use of autoregressive distributed lag technique and traditional Granger causality tests to achieve the research objective. The outcome of the study upheld the presence of twin deficit hypothesis for Nigeria and discards not only the Ricardian equivalence proposition, but also the reverse and bi-directional causality hypotheses. This is supported by Granger causality test that the relationship runs unidirectionally from budget deficit to current account deficit. Therefore, it is logical to assert that the source of the country’s current account deficit problems could be traced to the mounting fiscal imbalances.

Keywords: Twin deficit hypothesis; Structural break; Current account deficit; Autoregression; Cointegration; Nigeria (search for similar items in EconPapers)
JEL-codes: E62 C22 F32 (search for similar items in EconPapers)
Date: 2019
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DOI: 10.1007/s40844-019-00122-8

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