An Empirical Investigation of Twin Deficits Hypothesis: Evidence from India
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The paper empirically examines the relationship between fiscal deficit and current account deficit in India for the period from 1970–1971 to 2013–2014. The Autoregressive Distributed Lag (ARDL) bounds testing approach is employed to analyze the long run and short run relationship between the twin deficits. The results support the validity of twin deficits hypothesis in India, both in the short run and long run. Policy makers should adopt various measures to control fiscal deficit for correcting the current account deficit in India.
KeywordsFiscal deficit Current account deficit Twin deficits hypothesis ARDL approach India
The author is immensely grateful to Prof. Pradipta Chaudhury and Prof. N. R. Bhanumurthy for their valuable guidance and constructive suggestions. The author would wish to thank to the editor and anonymous referees for their useful comments and suggestions. Errors and omissions, if any, are my own doing.
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