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Dynamic relationship between budget deficit and current account deficit in the light of Nigerian empirical application

Author

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  • Ergin Akalpler

    (Near East University)

  • Yohanna Panshak

    (Near East University)

Abstract

This research empirically investigates the link between current account deficit and the budget deficit for Nigeria with the use of annual time series spanning 1980–2016. These deficits have significant implications on the country’s macroeconomic stability and overall growth. The research makes use of autoregressive distributed lag technique and traditional Granger causality tests to achieve the research objective. The outcome of the study upheld the presence of twin deficit hypothesis for Nigeria and discards not only the Ricardian equivalence proposition, but also the reverse and bi-directional causality hypotheses. This is supported by Granger causality test that the relationship runs unidirectionally from budget deficit to current account deficit. Therefore, it is logical to assert that the source of the country’s current account deficit problems could be traced to the mounting fiscal imbalances.

Suggested Citation

  • Ergin Akalpler & Yohanna Panshak, 2019. "Dynamic relationship between budget deficit and current account deficit in the light of Nigerian empirical application," Evolutionary and Institutional Economics Review, Springer, vol. 16(1), pages 159-179, June.
    • Handle: RePEc:spr:eaiere:v:16:y:2019:i:1:d:10.1007_s40844-019-00122-8
    DOI: 10.1007/s40844-019-00122-8
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    Cited by:

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    2. Eregha, Perekunah B. & Aworinde, Olalekan B. & Vo, Xuan Vinh, 2022. "Modeling twin deficit hypothesis with oil price volatility in African oil-producing countries," Resources Policy, Elsevier, vol. 75(C).
    3. Engy Raouf, 2020. "A Non-Linear Autoreggresive Distributed Lag Analysis of the Triple Deficit Hypothesis in the Mena Region," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 10(8), pages 895-905, August.
    4. Ibrar Hussain & Umar Hayat & Md Shabbir Alam & Uzma Khan, 2024. "A Dynamic Analysis of the Twin-Deficit Hypothesis: the Case of a Developing Country," Asia-Pacific Financial Markets, Springer;Japanese Association of Financial Economics and Engineering, vol. 31(1), pages 25-52, March.

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    More about this item

    Keywords

    Twin deficit hypothesis; Structural break; Current account deficit; Autoregression; Cointegration; Nigeria;
    All these keywords.

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements

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