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Detecting the Causality between Budget Deficit and Trade Deficit in Lebanon

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  • EL-Moussawi, Chawki
  • Awdeh, Ali

Abstract

This paper examines the link between government budget deficit and trade in Lebanon over the period 1975-2011. It uses cointegration and Granger causality tests to detect the short-run and the long-run relationships between the two deficits, and with other macroeconomic variables. The empirical results suggest that the budget deficit, the trade balance, the interest rate, and the exchange rate are cointegrated, suggesting the existence of an equilibrium relationship binding all these variables together. Besides, and most importantly, a bi-directional causality between budget deficit and trade deficit is detected, giving support to the “twin deficit” hypothesis.

Suggested Citation

  • EL-Moussawi, Chawki & Awdeh, Ali, 2013. "Detecting the Causality between Budget Deficit and Trade Deficit in Lebanon," MPRA Paper 119123, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:119123
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    References listed on IDEAS

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    More about this item

    Keywords

    Trade Deficit; Budget Deficit; Cointegration; Causality.;
    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
    • H62 - Public Economics - - National Budget, Deficit, and Debt - - - Deficit; Surplus

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