Testing the Keynesian proposition of twin deficits in the presence of trade liberalisation: evidence from Sri Lanka

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Khorshed, Chowdhury and Saleh, Ali Salman (2008) Testing the Keynesian proposition of twin deficits in the presence of trade liberalisation: evidence from Sri Lanka. The Middle East Business and Economic Review, 20 (1). pp. 20-37. ISSN 1035-3704

Abstract

This paper examines the long-run and short-run relationships between the current account deficit, budget deficit, savings and investment gap and trade openness in Sri Lanka using the autoregressive distributive lagged (ARDL) approach. The time series properties of the variables, in the presence of endogenous structural breaks, was previously analysed using Perron’s (1997) additive outlier (AO) and innovational outlier (IO) models. The empirical analysis supports the Keynesian view that a link exists between the current account, budget deficit and savings and investment gap. We found that trade openness has a positive effect on the current account deficit, but is statistically insignificant, and offer some strategies to stabilise the budget deficit and current account deficits in Sri Lanka.

Item type Article
URI https://vuir.vu.edu.au/id/eprint/3757
Subjects Historical > Faculty/School/Research Centre/Department > School of Economics and Finance
Current > FOR Classification > 1402 Applied Economics
Historical > SEO Classification > 9101 Macroeconomics
Keywords ResPubID15685, twin deficit, structural change, unit roots, autoregressive distributive lagged (ARDL)
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