Empirical analysis of the twin deficits hypothesis in the republic of North Macedonia
DOI:
https://doi.org/10.59380/crj.vi5.5105Abstract
The twin deficits hypothesis is widely considered one of the most frequently employed phenomena in the economic literature. An econometric analysis of the twin deficit hypothesis is of special importance in understanding the perspective on macroeconomic stability in the Republic of North Macedonia. This paper aims to empirically test the validity of this hypothesis in the Republic of North Macedonia. To do so, we utilized quarterly data on Macedonia’s budget deficit, the current account deficit, exchange rate, interest rate, GDP, government expenditure, and money supply, starting from the first quarter of 2001 to the fourth quarter of 2022. Through the application of the ARDL model, the study found that between the variables taken into analysis, there exists a short and long-run relationship. More specifically exchange rate, government expenditure, and GDP result in improvement on the budget deficit, both in the short run and long run. While current account deficit, interest rate, and money supply result in worsening the budget deficit, both in the short run and long run.Keywords:
North Macedonia, twin deficits, budget deficit, current account deficit, ARDL modelDownloads
References
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Alkswani, M. A. (2002). The Twin Deficits Phenomenon in Petroleum Economy: Evidence from Saudi Arabia. Discussion Papers of Department of Economics, King Saud University. Web site: https://www.mafhoum.com/press2/79E15.pdf
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Anoruo, E. a. (1998). Current Account and Fiscal Deficits: Evidence from Five Developing Economies of Asia. Journal of Asian Economics, 9(3), 487-501. doi:https://doi.org/10.1016/S1049-0078(99)80099-2
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Bucevska, V. (2020). Testing the Twin Deficit Hypothesis: Evidence from the Republic of North Macedonia. Business Systems Research, 11(3), 45-62. doi:https://doi.org/10.2478/bsrj-2020-0026
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Darrat, A. F. (1988). Have Large Deficits Caused Rising Trade Deficits? Southern Economic Journal, 54(4), 879-887. doi:http://dx.doi.org/10.2307/1059523
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Harko, A. N. (2009). Twin Deficits Causality Link – Evidence from Pakistan. International Research Journal of Finance and Economics, 24, 54-70. Web site: https://www.researchgate.net/publication/255481139_Twin_Deficits_Causality_Link-Evidence_from_Pakistan
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Lau, E. a. (2006). “Twin Deficits Hypothesis in SEACEN Countries: A Panel Data Analysis of Relationships between Public Budget and Current Account Deficits. Applied Econometrics and International Development, 6(2), 213-226. Web site: https://www.usc.es/economet/journals1/aeid/aeid6215.pdf
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Lau, E. a. (2009). Twin deficits in Cambodia: Are there Reasons for Concern? An Empirical Study. Discussion Papers of Monash University, Australia, 11(9). Web site: https://www.monash.edu/__data/assets/pdf_file/0011/925481/twin_deficits_in_cambodia_are_there_reasons_for_concern_an_empirical_study.pdf
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Mukhtar, T. Z. (2007). An Empirical Investigation for the Twin Deficit Hypothesis in Pakistan. Journal of Economic Cooperation, 28(4), 63-80. Web site: https://www.researchgate.net/publication/253599258_AN_EMPIRICAL_INVESTIGATION_FOR_THE_TWIN_DEFICITS_HYPOTHESIS_IN_PAKISTAN
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Pahlavani, M. a. (2009). Budget Deficits and Current Account Deficits in the Philippines: A Casual Relationship? American Journal of Applied Sciences, 6(8), 1515-1520. doi: https://doi.org/10.3844/ajassp.2009.1515.1520
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Perera, A., & Liyanage, E. (n.d.). An Empirical Investigation of the Twin Deficit Hypothesis: Evidence from Sri Lanka. Staff Studies, 41(1 & 2), 41-87. doi: http://dx.doi.org/10.4038/ss.v41i1.4683
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Rahman, M. a. (2001). Cointegration of U.S. Budget and Current Account Deficits: Twins or Strangers?”. Journal of Economics and Finance, 16(2), 119-127. doi: https://doi.org/10.1007/BF02920112
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Ratha, A. (2011). Twin Deficits or Distant Cousins? Evidence from India. Working Papers of Department of Economics, St. Cloud State University, USA. Web site: https://repository.stcloudstate.edu/econ_wps/5
References
Alkswani, M. A. (2002). The Twin Deficits Phenomenon in Petroleum Economy: Evidence from Saudi Arabia. Discussion Papers of Department of Economics, King Saud University. Web site: https://www.mafhoum.com/press2/79E15.pdf
Anoruo, E. a. (1998). Current Account and Fiscal Deficits: Evidence from Five Developing Economies of Asia. Journal of Asian Economics, 9(3), 487-501. doi:https://doi.org/10.1016/S1049-0078(99)80099-2
Bucevska, V. (2020). Testing the Twin Deficit Hypothesis: Evidence from the Republic of North Macedonia. Business Systems Research, 11(3), 45-62. doi:https://doi.org/10.2478/bsrj-2020-0026
Darrat, A. F. (1988). Have Large Deficits Caused Rising Trade Deficits? Southern Economic Journal, 54(4), 879-887. doi:http://dx.doi.org/10.2307/1059523
Harko, A. N. (2009). Twin Deficits Causality Link – Evidence from Pakistan. International Research Journal of Finance and Economics, 24, 54-70. Web site: https://www.researchgate.net/publication/255481139_Twin_Deficits_Causality_Link-Evidence_from_Pakistan
Lau, E. a. (2006). “Twin Deficits Hypothesis in SEACEN Countries: A Panel Data Analysis of Relationships between Public Budget and Current Account Deficits. Applied Econometrics and International Development, 6(2), 213-226. Web site: https://www.usc.es/economet/journals1/aeid/aeid6215.pdf
Lau, E. a. (2009). Twin deficits in Cambodia: Are there Reasons for Concern? An Empirical Study. Discussion Papers of Monash University, Australia, 11(9). Web site: https://www.monash.edu/__data/assets/pdf_file/0011/925481/twin_deficits_in_cambodia_are_there_reasons_for_concern_an_empirical_study.pdf
Mukhtar, T. Z. (2007). An Empirical Investigation for the Twin Deficit Hypothesis in Pakistan. Journal of Economic Cooperation, 28(4), 63-80. Web site: https://www.researchgate.net/publication/253599258_AN_EMPIRICAL_INVESTIGATION_FOR_THE_TWIN_DEFICITS_HYPOTHESIS_IN_PAKISTAN
Pahlavani, M. a. (2009). Budget Deficits and Current Account Deficits in the Philippines: A Casual Relationship? American Journal of Applied Sciences, 6(8), 1515-1520. doi: https://doi.org/10.3844/ajassp.2009.1515.1520
Perera, A., & Liyanage, E. (n.d.). An Empirical Investigation of the Twin Deficit Hypothesis: Evidence from Sri Lanka. Staff Studies, 41(1 & 2), 41-87. doi: http://dx.doi.org/10.4038/ss.v41i1.4683
Rahman, M. a. (2001). Cointegration of U.S. Budget and Current Account Deficits: Twins or Strangers?”. Journal of Economics and Finance, 16(2), 119-127. doi: https://doi.org/10.1007/BF02920112
Ratha, A. (2011). Twin Deficits or Distant Cousins? Evidence from India. Working Papers of Department of Economics, St. Cloud State University, USA. Web site: https://repository.stcloudstate.edu/econ_wps/5
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