TWIN DEFICITS AND THE FELDSTEIN-HORIOKAHYPOTHESIS: THE ANALYSIS OF PANEL COINTEGRATION WITH STRUCTURAL BREAK UNDER THE CROSS SECTION DEPENDENCE ON OECD COUNTRIES

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This study investigates the validity of the twin deficits and the Feldstein-Horioka hypotheses for 20 OECD countries by using the current account deficit, budget deficit andfixed capital investmentvariables. The presence of co-integration has been confirmed among variables invempirical application and it has been concluded that both hypotheses are valid. According to the results obtained from the study,an increase in the budget deficit increases the current account deficit in OECD countries. Furthermore, Investment coefficient’s being close to 1(0.929) reveals that the group of countries which is examined during the relevant period integrates with the world economy and approximately %93 of domestic investment are financed from foreign sources. Accordingly, policy makers should support the policies that reduce increasing budget and savings deficit

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Twin Deficits , Feldstein , Horioka Hypothesis , Panel Cointegration

Erciyes University Journal Of Economics an‎d Administrative Sciences

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Erciyes University Journal Of Economics an‎d Administrative Sciences