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Fiscal policy and the current account new evidence from four East Asian countries

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  • Hassan Mohammadi
  • Golaleh Moshrefi

Abstract

The long-run relation and short-run dynamics of fiscal policy and current account is examined using time-series data on four East Asian economies -- South Korea, Malaysia, Singapore and Thailand. The purpose of the study is to test the validity of two alternative views on budget deficits -- the Ricardian and Keynesian theories. According to Ricardians, given the path government spending, a rise in budget deficits has no effect of national savings, investment and the current account. In contrast, Keynesian theory suggests that such tax cuts reduce national savings and result in current account deficits. Empirical results based on cointegration model and Error Correction Model (ECM) over 1975--2008 are broadly consistent with the Ricardian view.

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  • Hassan Mohammadi & Golaleh Moshrefi, 2012. "Fiscal policy and the current account new evidence from four East Asian countries," Applied Economics Letters, Taylor & Francis Journals, vol. 19(2), pages 167-173, February.
    • Handle: RePEc:taf:apeclt:v:19:y:2012:i:2:p:167-173
    DOI: 10.1080/13504851.2011.570703
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    Cited by:

    1. Bariş Gök & Abdurrahman Nazif Çatik, 2016. "Is There Any Time-Varying Relationship between Fiscal and Trade Deficits in Turkey?," Prague Economic Papers, Prague University of Economics and Business, vol. 2016(5), pages 607-616.
    2. Hong, Law Chee, 2016. "Sectoral Impact of Fiscal Policy in Malaysia," Jurnal Ekonomi Malaysia, Faculty of Economics and Business, Universiti Kebangsaan Malaysia, vol. 50(1), pages 81-98.
    3. Manamba Epaphra, 0. "The Twin Deficits Hypothesis: An Empirical Analysis for Tanzania," Romanian Economic Journal, Department of International Business and Economics from the Academy of Economic Studies Bucharest, vol. 20(65), pages 2-34, September.
    4. Yu Hsing, 2016. "Is Real Depreciation Contractionary? The Case of South Korea," Economics Bulletin, AccessEcon, vol. 36(4), pages 1951-1958.
    5. 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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