Twin Deficit Hypothesis Validation: A case study of Pakistan
Download| Volume 2 Issue 2 2021 | |
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| Author(s): |
Jahangeer Ahmed Soomro
Dr. Nazia Abdul Rehman
Javeed Chavara
Dr. Khurram Shakir
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| Abstract | The core purpose of this paper is to empirically test the twin deficit hypothesis validation in context of Pakistan. To achieve this purpose, we used annual data on Pakistan’s budget and the trade deficit in the period from 1976 until the end of 2017 and applied econometrics method: ARDL (Autoregressive Distributed Lag) bound test to analyze the short run and long run association between budget deficit and trade deficit. The study confirms both short run and long-run co-movements of trade deficit and budget deficit. The statistical value of the long run relationship estimate that 1% change in trade deficit causes positive change of 0.3% in budget deficit, while in short run 1% change in trade deficit causes negative change of 0.57% in budget deficit. The study results validates twin-deficit hypothesis and invalidates the Ricardian Equivalence proposition in context of Pakistan and conclude that trade deficit is one of the determinants of budget deficit and can cause it. The variables have significant relationship in both short run and long run. The policy makers should focus not only on reducing the deficit balance of budget, but also on improving the country external position though promotion of export. |
| Keywords | Trade deficit, Budget deficit, Inflation, Foreign Direct Investment, Gross Domestic Products (GDP) |
| Year | 2021 |
| Volume | 2 |
| Issue | 2 |
| Type | Research paper, manuscript, article |
| Recognized by | Higher Education Commission of Pakistan, HEC | Category | "Y" | Journal Name | ILMA Journal of Social Sciences & Economics | Publisher Name | ILMA University | Jel Classification | - | DOI | http://dx.doi.org/ | ISSN no (E, Electronic) | 2790-5896 | ISSN no (P, Print) | 2709-2232 | Country | Pakistan | City | Karachi | Institution Type | University | Journal Type | Open Access | Manuscript Processing | Blind Peer Reviewed | Format | Paper Link | http://ijsse.ilmauniversity.edu.pk/arc/Vol2/pdf/v2/1.pdf | Page | - |