Correlation of Macroeconomic Variables with Twin Deficit in Pakistan


Volume 16 Issue 1 2020


Nazia Abdul Rehman
PhD Scholar, Hamdard University.

Musarrat Shamshir
Greenwich University.

Khurram Shakir
Benazir Bhutto Shaheed University Lyari.

Abstract The macroeconomic term Twin deficit is intensive of the study, which refers to a situation when in an economy both current account and the budget deficits are running at the correspondent period. The core objective of the paper to investigate the relationship between the twin deficit hypothesis and major macroeconomic variables (Gross domestic product, Foreign Direct Investment, money supply, and interest rate). The results of the study were found through the secondary time series quarterly data from 1992-2018 of Pakistan’s economy. In the study to examine the stationary of data, applied Augmented Dickey-Fuller test and then used Vector Error Correction and Johansen co-integration Model to examine the short and long-term relationship among observed variables. The core finding of the study was that in a short period along with a long-run period Pakistan faced a twin deficit situation due to the positive association of current account deficit and Budget deficit. The outcomes of the study also indicate that GDP and FDI have a positive long-run association while money supply and rate of interest have a negatively long-run association with twin deficit. These results of the study are very helpful for the decision-making and implementation of fiscal, monetary, and export policies in Pakistan.
Keywords Twin deficit, Macroeconomics Variables, VECM.
Year 2020
Volume 16
Issue 1
Type Research paper, manuscript, article
Recognized by Higher Education Commission of Pakistan, HEC
Category "Y"
Journal Name IBT Journal of Business Studies
Publisher Name ILMA University
Jel Classification E02, E44, E71, E41, E45, F62, J11
ISSN no (E, Electronic) 2409-6520
ISSN no (P, Print) 2416-8393
Country Pakistan
City Karachi
Institution Type University
Journal Type Open Access
Type of Review Double Blind Peer Reviewed
Format PDF
Paper Link
Page 1-16
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