Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/270042 
Year of Publication: 
2021
Citation: 
[Journal:] Cogent Economics & Finance [ISSN:] 2332-2039 [Volume:] 9 [Issue:] 1 [Article No.:] 1886451 [Year:] 2021 [Pages:] 1-22
Publisher: 
Taylor & Francis, Abingdon
Abstract: 
Over the years, empirical evidence on twin-deficit hypothesis has been inconsistent. While some support it, others affirm the prevalence of the Ricardian Equivalence. This study therefore examines a nonlinear/threshold relationship between the deficits among the BRICS economies using the Panel ARDL (1, 1) model with a quarterly data spanning from 2000q1 to 2019q4. The efficient estimator of PMG based on the Hausman test shows that twin divergence holds among the BRICS market up to a certain threshold beyond which the hypothesis holds. This suggests that BRICS countries face a dampening effect of fiscal/current deficits on their current account/fiscal deficits to a point after which further increases in either of the deficits will significantly raise the other. The static fixed effect technique and second-order U-shaped test reveal a consistent result. The speed of adjustment to long-run steady state for the current account deficits and the fiscal deficits models are 27.4 and 52.5 per cents respectively, at 5 per cent significance level. However, higher growth shocks and interest rate lead to divergence of the deficits while exchange rate and trade openness dampen it. Fiscal deepening and management within a bound were recommended as the panacea for twin-deficit problems.
Subjects: 
BRICS economies
current account deficits
Fiscal deficit
panel ARDL
Persistent Identifier of the first edition: 
Creative Commons License: 
cc-by Logo
Document Type: 
Article

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