TESTING OF TWIN DEFICITS HYPOTHESIS IN FRAGILE FIVE WITH PANEL CAUSALITY ANALYSIS

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The existence of the relationship between the budget deficit and the current account deficit and the causal relationship from the budget deficits to the current account deficit is defined as the twin deficit. In this study, the existence of the twin deficit hypothesis in fragile five countries where the current account deficits are difficult to finance due to the negative effects of national currencies on international capital movements and insufficient domestic savings was tested with the panel causality analysis (Dumitrescu-Hurlin 2016). Following the fluctuations in the money and capital markets in national currencies depreciating Brazil, India, Indonesia, Turkey and South Africa has been identified as fragile five countries in 2013. In the analysis covering the period 2000-2018, the results of the panel causality analysis of Dumitrescu-Hurlin (2016) indicate that there is a one-way relationship between budget deficits and current account deficits. According to the causality analysis results, the direction of causality is from current deficits to budget deficits. Therefore, the twin deficit hypothesis is not valid for the fragile five countries.

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Twin Deficit Hypothesis , Current Deficit , Budget Deficit , Panel Causality

Abant Sosyal Bilimler Dergisi

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Abant Sosyal Bilimler Dergisi