The dynamic linkages between current account deficit and budget balance deficit in the South Asian region
ارتباط پویا بین کسری حساب جاری و کسری تراز بودجه در منطقه جنوب آسیا-2021
The issue of twin imbalances is at the forefront of fiscal policy concerns in the South Asian region, fuelled by an ever-going budget deficit and current account deficit over the last five decades. A standard approach is to assume a model in which budget balance influences the current account. We relax this assumption by using a panel data vector autoregression model comprising five South Asian countries. The results show that both budget deficit and current account deficit are mutually causative, which contrasts the unidirectional causality running from fiscal deficit to current account deficit found in prior studies. Further, this bi-causality relationship is also demonstrated in the impulse response analyses. Budget balance in South Asian economies re- sponds positively to a one standard deviation positive shock in the current account balance. Likewise, external balance increases to a one standard deviation positive shock in internal bal- ance. Higher fiscal debt impedes economic growth, which in turn impacts negatively on the budget balance. Our findings lead us to reject ’fiscal policy only’ recommendations to address the twin deficits.
keywords: کسری دوقلو | مدل P-VAR | آزمون علیت پانل گرنجر | تابع پاسخ ضربه ای | آسیای جنوبی | Twin deficits | P-VAR model | Panel Granger causality test | Impulse response function | South Asia