Is The Twin Deficit Hypothesis Applicable in SSA Countries?

This study empirically examines the validity of the twin deficits hypotheses using panel ARDL model and Dumitrescu & Hurlin (2012) Granger causality test using an annual panel data set of 18 SSA countries from 2000 to 2018. The paper explores long-run relationship between the series and their short-run dynamics. Our findings, based on panel DFE model suggest that there is a positive relationship between the trade balance (current account) deficit and fiscal deficits and therefore, support the twin deficits hypothesis. In other words, from the Dumitrescu & Hurlin (2012) Granger causality test, we find one directional Granger-causal relationship from trade (or current account) deficits to budget deficits.