The role of twin deficits problem in sustainable growth: an econometric analysis for turkey

In economics literature the relationship between budget deficit and current account deficit is known as twin deficits hypothesis. The Keynesian Approach accepts a relationship between two deficits. In contrast to this, ricardian equivalence Hypothesis defends there is no relationship between these two deficits. twin deficits have become the subject of several studies to test which of these hypotheses are reliable but no consensus has been achieved. some studies found a relationship from budget deficit to current account deficit but some of them had the opposite result. especially after 1980 it is known that many developed and developing countries encountered with this twin deficits problem. turkey also has the problem of twin deficits. Therefore, it is important to find whether there is causality between them and the direction of this causality. In this study the relationship between budget deficit and current account deficit is examined by using Johansen cointegration Analysis. This study is based on period 1996:Q1-2011:Q4. According to results of cointegration; variable coefficients are statistically significant and  consistent with what we expected in hypotheses. current account deficit (cAd) has a significant negative effect on budget deficit (Bd). When there is a 1% increase in cAd, Bddecreases 0,12%. This finding is consistent with economic theory because according to Keynesian Approach two deficits have relationship with each other. However, in contrast to this approach, the direction is from cAdto Bdand also coefficient is negative.

Budget deficit ,

current Account deficit ,

sustainable Growth ,

econometric Modelling ,

turkey ,