Turkish Twin Effects: An Error Correction Model of Trade Balance

Elif Akbostanci () and Gül Ipek Tunç ()
Additional contact information
Elif Akbostanci: Department of Economics, METU
Gül Ipek Tunç: Department of Economics, METU

No 106, ERC Working Papers from ERC - Economic Research Center, Middle East Technical University

Abstract: Twin deficit hypothesis mainly states that government budget deficits will cause trade deficits. However, this is not the only theoretically possible relationship between the budget deficit and the trade deficit. On the other extreme if Ricardian equivalence hypothesis holds it is also possible that two deficits are not related at all. In this study these hypotheses between the budget deficit and trade deficit for Turkey between 1987 - 2001 period are examined by using the cointegration methodology and by estimating an error correction model. This enabled us to search the relationship between the internal and external deficits both in the short-run and in the long-run. Our analysis showed that there is a long-run relationship between the two deficits. Also the short-run model yielded that worsening of the budget balance worsens the trade balance. Therefore we have concluded that the twin deficit hypothesis holds, and Ricardian equivalence hypothesis is not valid for Turkey during the study period.

Keywords: Twin deficits; trade deficit; budget deficit; Ricardian equivalence; cointegration; error correction models; unit roots; Turkey (search for similar items in EconPapers)
JEL-codes: F30 F32 F41 (search for similar items in EconPapers)
Pages: 18 pages
Date: 2001-06, Revised 2001-06
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
http://www.erc.metu.edu.tr/menu/series01/0106.pdf First version, 2001 (application/pdf)
Our link check indicates that this URL is bad, the error code is: 404 Not Found (http://www.erc.metu.edu.tr/menu/series01/0106.pdf [301 Moved Permanently]--> http://erc.metu.edu.tr/menu/series01/0106.pdf)

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:met:wpaper:0106

Access Statistics for this paper

More papers in ERC Working Papers from ERC - Economic Research Center, Middle East Technical University Contact information at EDIRC.
Bibliographic data for series maintained by Erol Taymaz ().