Detecting the Causality between Budget Deficit and Trade Deficit in Lebanon

Chawki EL-Moussawi and Ali Awdeh ()
Authors registered in the RePEc Author Service: Chawki EL MOUSSAWI

MPRA Paper from University Library of Munich, Germany

Abstract: This paper examines the link between government budget deficit and trade in Lebanon over the period 1975-2011. It uses cointegration and Granger causality tests to detect the short-run and the long-run relationships between the two deficits, and with other macroeconomic variables. The empirical results suggest that the budget deficit, the trade balance, the interest rate, and the exchange rate are cointegrated, suggesting the existence of an equilibrium relationship binding all these variables together. Besides, and most importantly, a bi-directional causality between budget deficit and trade deficit is detected, giving support to the “twin deficit” hypothesis.

Keywords: Trade Deficit; Budget Deficit; Cointegration; Causality. (search for similar items in EconPapers)
JEL-codes: E62 H62 (search for similar items in EconPapers)
Date: 2013
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Published in International Research Journal of Finance and Economics 108 (2013): pp. 164-178

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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:119123

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