Budget deficit and trade deficit causality in the Philippines:1960-2010  

Oleh:

ELLORIMO, R

Jenis: Article from Proceeding
Dalam koleksi: SIBR-Thammasat 2014 Conference on Interdisciplinary Business & Economics Research June 5th- 7th, 2014 di Emerald Hotel Bangkok, page 1.
Topik: bd; td; time series; VAR analysis
Fulltext: b14-018.pdf (85.65KB)

Isi artikel

The relationship between budget deficit (BD) and trade deficit (TD) has attracted a great deal of attention from academics and policy-makers. Hence, an extensive theoretical and empirical literature examining these two variables is necessary. In this study, the author explored whether twin deficit hypothesis exists in the Philippines, taking into consideration, budget deficit and trade deficit, using Vector Autoregressive (VAR) Analysis. The study proceeds with the Granger Causality test to determine the causal direction of its relationship. Though the study originally aimed to establish long-run relationship between BD and TD, stationarity of the variables prevented the author from doing so. Thus, using VAR analysis, the results show short-run, not long-run relationship between the variables.Under the standard time series procedures, results of this study showed that all economic variables are stationary in process. Using results from VAR (2), there exists a relationship between the two variables. This means, the expected effect of a variable to another is felt two years after. Causality tests at 0.10 significance level revealed that there exixts a unidirectional causality running from budget deficit (BD) to trade deficit (TD). Meaning, an increase in budget deficit will also lead to an increase in trade deficit. Thus, causality between the two variables will retard economic growth.

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