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Assessing the Twin and Triple Deficit Hypotheses in Developing Economies: A Panel Causality Analysis

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Global Approaches in Financial Economics, Banking, and Finance

Part of the book series: Contributions to Economics ((CE))

Abstract

Twin deficit hypothesis, regarding Keynesian and Ricardian perspective, introducing of the linkage between budget deficit and current account deficit is broadly investigated. The literature on triple deficits which advance twin deficit hypothesis by associating savings and fixed investments is limited. The aim of this chapter is to explore whether the twin and triple deficit hypotheses are valid in developing economies. To this end, the twin and triple deficit hypotheses are examined by testing Dumitrescu and Hurlin (Economic Modelling 29(4): 1450–1460, 2012) panel causality approach for 15 developing country economies. The Czech Republic, Hungary, Estonia, Lithuania, Latvia, Ukraine, Brazil, India, Malaysia, Slovak Republic, Romania, Poland, Russian Federation, South Africa, and Turkey were analyzed, and the period is between 2000 and 2015 in the study. According to the panel causality results, there is a unidirectional causality from budget deficit to current account deficit. It is concluded that hypothesis of twin deficits is valid for the country group analyzed. In the field of the triple deficit hypothesis, a strong interrelationship between domestic savings and the current account is reached, while a causal relationship between fixed capital investments and the current account balance cannot be determined. In this context, when considering domestic savings as the decisive variable in the saving-investment gap, it is concluded that the theory of triple deficit is partially valid for the group of developing countries.

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Authors and Affiliations

  1. Bulent Ecevit University, Zonguldak, Turkey

    Arzu Tay Bayramoğlu & Zafer Öztürk

Authors
  1. Arzu Tay Bayramoğlu
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  2. Zafer Öztürk
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Correspondence to Arzu Tay Bayramoğlu .

Editor information

Editors and Affiliations

  1. Istanbul Medipol University, Istanbul, Turkey

    Hasan Dincer

  2. Istanbul Medipol University, Istanbul, Turkey

    Ümit Hacioglu

  3. Istanbul Medipol University , Istanbul, Turkey

    Serhat Yüksel

Keywords Definitions

Keywords Definitions

Twin deficit hypothesis: The hypothesis that explains budget deficit has influence on current account deficit.

Triple deficit hypothesis: It refers to the situation in the economy, the public budget deficit, the saving-investment deficit, and the current account deficit occurring at the same time.

Budget deficit: It means that government revenue is smaller than the government expense.

Current account: It is defined as the sum of net exports of goods and services, net primary income, and net current transfers.

Saving gap: Private sector savings minus fixed capital investments.

Panel data analysis: It is a type of analysis where cross-sectional observations of units such as individuals, countries, companies, and households are assembled at a certain time period.

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Bayramoğlu, A.T., Öztürk, Z. (2018). Assessing the Twin and Triple Deficit Hypotheses in Developing Economies: A Panel Causality Analysis. In: Dincer, H., Hacioglu, Ü., Yüksel, S. (eds) Global Approaches in Financial Economics, Banking, and Finance. Contributions to Economics. Springer, Cham. https://doi.org/10.1007/978-3-319-78494-6_10

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