We found a match
Your institution may have access to this item. Find your institution then sign in to continue.
- Title
Which among twin deficits hypothesis, twin divergence, and Ricardian's equivalence hold in a developing country?
- Authors
Ncanywa, Thobeka; Letsoalo, Thamaga Edwin
- Abstract
South Africa witnesses the perpetual increase in budget deficit that hampers its ability for inclusive economic growth while on the other hand facing trade balance instability. To realise stability in the economy and sustainable yet inclusive economic growth, the two deficits, namely, budget and trade deficits, should be closely monitored. The study examined the empirical relationship between budget deficit and trade deficit in South Africa in the postapartheid era, employing time series data from 1994 to 2016. The autoregressive distribution lag approach was employed to examine the existence of a cointegration between the set of variables, both in the short‐ and the long‐run relationships and together with the error correction model. It was found that there is a significant and positive relationship between budget deficit and trade deficit in the short run. However, in the long run, the Ricardian's equivalence holds in South Africa. The study recommends that policies aimed at reducing budget and trade deficits should take into account inflation and aim to increase some macroeconomic variables such as fixed investment to ultimately achieve sustainable economic growth.
- Subjects
BUDGET deficits; RICARDIAN equivalence theorem; ECONOMIC development; DEVELOPING countries; EMPIRICAL research
- Publication
Journal of Public Affairs (14723891), 2019, Vol 19, Issue 2, pN.PAG
- ISSN
1472-3891
- Publication type
Article
- DOI
10.1002/pa.1904