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Budget-current account deficits nexus in Malaysia

Chin-Hong Puah (), Evan Lau () and Kim Lee Tan

MPRA Paper from University Library of Munich, Germany

Abstract: The purpose of this study is to contribute further on the twin deficits debate in a developing economy. The data for Malaysia over four decades is used as a case study. Empirical result obtained from the Johansen-Juselius (1990) cointegration test indicates that budget deficit and current account deficit do not contain common stochastic trend in the long run. However, the findings from the Granger non-causality test by Toda-Yamamoto (1995) support the Summer’s (1988) reverse causation proposition. This implies that a unidirectional causality running from current account to budgetary variable where the deterioration in current account deficit could worsen the budgetary position in the case of Malaysia.

Keywords: Twin deficits; Fiscal policy; Toda-Yamamoto test (search for similar items in EconPapers)
JEL-codes: E62 C32 H62 (search for similar items in EconPapers)
Date: 2006
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Published in The Journal of Global Business Management 2.2(2006): pp. 126-135

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