TWIN DEFICIT HYPOTHESIS IN THE PRESENCE OF STRUCTURAL BREAKS IN NIGERIA
Journal Title: Ilorin Journal of Economic Policy - Year 2020, Vol 7, Issue 1
Abstract
Empirical studies on twin deficit debate have focused on how current account imbalances are related to budget imbalance without considering underlying structural forces associated with domestic economy. The main objective of this paper is to examine the effect of structural break on the validity of twin deficit hypothesis in Nigeria and to examine the dynamic interaction among the variables. The study employs the ARDL approach, variance decomposition, VAR-impulse response and Granger causality test to show dynamics between budget deficit and the current account deficit in Nigeria. The empirical results from ARDL indicate that budget deficit exerts a positive effect on the current account deficit both in the long run and short run implying the validity of twin deficit hypothesis in Nigeria. Granger causality test confirms no causality between the twin deficits. The impulse response result also reveals negative effect of shock in fiscal deficit on current account deficit while variance decomposition result shows that current account deficit substantially influences fiscal deficit variance. However, from all the methodologies adopted, structural break does not significantly affect the relationship between the deficits. The policy implication is that persistent increase in budget deficit tends to deteriorate current account balance. Therefore, government of Nigeria should exercise caution in using budget deficit to influence current account deficit even when structural break effect is considered.
Authors and Affiliations
Ismaila Akolapo Samotu & Monica Adele Orisadare
Keywords
Related Articles
- EP ID EP684197
- DOI -
- Views 258
- Downloads 0
POLLUTANT EMISSIONS, INSTITUTIONS AND ECONOMIC GROWTH IN NIGERIA
The literature shows that to minimize the adverse effects of pollution on economic growth, the appropriate institutions must be put in place. While this is a plausible explanation, there are few evidences to confirm this...
ASYMMETRIC INFLUENCE OF FINANCIAL DEVELOPMENT ON UNEMPLOYMENT IN NIGERIA
The existing studies show conflicting results in the interaction between unemployment and financial development. In this study, we examine the asymmetric effect of financial development on unemployment in Nigeria. Using...
ANALYSIS OF POLITICAL INSTITUTIONS AND CENTRAL BANK TRANSPARENCY IN SELECTED AFRICAN COUNTRIES
Studies on central bank transparency focus on effect of central bank transparency rather than causes or determinants of central bank transparency. This paper empirically examined the impact of different measures of polit...
TWIN DEFICIT HYPOTHESIS IN THE PRESENCE OF STRUCTURAL BREAKS IN NIGERIA
Empirical studies on twin deficit debate have focused on how current account imbalances are related to budget imbalance without considering underlying structural forces associated with domestic economy. The main objectiv...
SUSTAINABLE LEVEL OF PARALLEL CURRENCY MARKET PREMIUM FOR SELECTED MACROECONOMIC INDICATORS IN NIGERIA
Unlike previous studies, this study concentrates on the level effects of the Parallel Currency Market Premium (PCMP) for macroeconomic variables which has largely been neglected in the empirical literature in Nigeria. It...