On public debt and twin imbalances in the South Asian region

Rajakaruna, Iwanthika; Suardi, Sandy; Perera, Nelson

doi:10.1080/00036846.2021.1875119

Cited by 2 publications

(4 citation statements)

References 32 publications

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“…Although they found a double threshold model, their study also indicated the same results where twin divergence is observed when the debt is below the threshold level. Nevertheless, this result is inconsistent with the findings from Nickel and Tudyka (2014), Kueh et al (2017), Okombi (2020), andRajakaruna et al (2021), where they found a positive relationship when debt is below a threshold level.…”

Section: Threshold Estimationcontrasting

confidence: 88%

“…Additionally, with the same objectives, Rajakaruna et al (2021) conducted research on five South Asian countries (Bhutan, Sri Lanka, Maldives, Pakistan, and India) that experienced twin deficits and with high debt-to-GDP ratio from 1980 to 2018 by employing panel threshold model. They found a double threshold model with a debt-to-GDP threshold at 46.21% and 65.80%.…”

Section: Literature Reviewmentioning

confidence: 99%

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Public Debt, Current Account Balance, and Fiscal Balance: The Threshold Effects in Selected ASEAN Countries

Soo

Ab-Rahim

Yau

2023

BER

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Indebtedness is a huge global issue faced by all economies around the world since the older time until today. The high and increasing debt levels have become a concern, and public debt has become the core of the turmoil that began a few years ago. When the government's spending in a year exceeds its revenue, there will be a budget deficit for that fiscal year. Hence, it must use debt to fill the funding gap. This situation creates an annual deficit, which cannot end until the accumulated debt becomes unsustainable and the government's finances collapse. Hence, this study is aimed to assess the impact of the public debt threshold on current account balance and fiscal balance in selected ASEAN countries (Indonesia, Malaysia, Philippines, Singapore, Thailand, and Vietnam) by adopting annual data from 1990 to 2021. In panel long run estimation by pooled mean group (PMG) estimator, public debt affects twin balances to have a positive relationship. In the empirical analysis, the single threshold sample splitting model is employed to assess the impact of the public debt threshold on the current account balance and fiscal balance either below or above the threshold level. The outcomes indicate that the public debt threshold level is at 63.36%. When the public debt threshold is below 63.36%, there is a negative relationship between the current account balance and fiscal balance; whereas when the public debt threshold is higher than 63.36%, there is positive nexus between the current account balance and fiscal balance. This result implies the situation of twin divergence situation when exceeding the public debt threshold level.

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Section: Threshold Estimationcontrasting

confidence: 88%

Section: Literature Reviewmentioning

confidence: 99%

Public Debt, Current Account Balance, and Fiscal Balance: The Threshold Effects in Selected ASEAN Countries

Soo

Ab-Rahim

Yau

2023

BER

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“…The conventional view of TDH in the current study supports the findings of Aqeel and Nishat ( 2000 ), Hakro ( 2009 ), and partially with the findings of Siddiqui ( 2010 ) in the case of Pakistan. Besides this, the current study confirms the findings of Salvatore ( 2006 ), Ratha ( 2012 ), Endegnanew et al ( 2013 ), Suresh and Tiwari ( 2014 ), Ravinthirakumaran et al ( 2015 ), and very recent studies of Afonso et al ( 2018 ), Bhat and Sharma ( 2018 ), Akalpler and Panshak ( 2019 ), Baharumshah et al ( 2019 ), Banday and Aneja ( 2019 ), Gaysset et al ( 2019 ), and Mohanty ( 2019 ), Ahmad and Aworinde ( 2020 ), Rehman et al ( 2020 ), Rajakaruna et al ( 2021 ), and Bousnina and Gabsi ( 2022 ). However, the study contradicts the findings of reverse causality running from CAB to fiscal balance by the studies of Rauf and Khan ( 2011 ), Saeed and Khan ( 2012 ), Rehman and Saeed ( 2017 ) in the case of Pakistan and the findings of other studies (like Kim & Kim, 2006 ; Marinheiro, 2008 ; Sobrino, 2013 ; and Nikiforos et al, 2015 ) other than Pakistan.…”

Section: Resultsmentioning

confidence: 95%

“…The study further evidences significant fiscal spillovers from fiscal consolidation in the surplus regions (Germany and European Monetary Union) to the deficit regions of southern European and MENA countries. In the context of South Asian region, Rajakaruna et al ( 2021 ) investigate the influence of a country’s public debt on its twin deficit relationship. Their study demonstrates a statistically significant non-linear relationship between the fiscal deficit and the current account balance when conditional on public debt levels.…”

Section: Review Of Literaturementioning

confidence: 99%

A Dynamic Analysis of the Twin-Deficit Hypothesis: the Case of a Developing Country

Hussain

Hayat

Alam

et al. 2023

Asia-Pac Financ Markets

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The main economic challenge is rising aggregate demand, which leaves the economy short on resources and leads to expanding fiscal and external account deficits. The current study uses autoregressive distributed lag (ARDL) model to evaluate the twin deficit hypothesis in the context of Pakistan in an effort to find an answer to this question. The study uses augmented ARDL, popularized by McNown et al. (Appl Econ 50:1509–1521, 2018) and Sam et al. (Econ Model 80:130–141, 2019), to address the degenerate problems that might arise while applying the ARDL approach. Two separate models were estimated, one with the current account balance as the dependent variable and the other with the balance of trade. In the long run, both models confirm the conventional interpretation of twin deficit hypothesis in Pakistan, with the causality running only from the fiscal deficit to the balance of trade. Other control variables in both models are crucial in understanding the current account balance and balance of trade. According to models, an increase in the exchange rate, as measured by the log of the nominal effective exchange rate, improves both current account and trade balance, verifying the elasticity approach in the long run. The openness of the economy is found to worsen current account balance, and the result is statistically significant. Contrarily, openness has been improved trade balance, but the result is statistically insignificant. To control a large and persistent external deficit, the government has to reduce its fiscal deficit, and such a strategy would be successful when monetary policy is accommodative.

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On public debt and twin imbalances in the South Asian region

Cited by 2 publications

References 32 publications

Public Debt, Current Account Balance, and Fiscal Balance: The Threshold Effects in Selected ASEAN Countries

Public Debt, Current Account Balance, and Fiscal Balance: The Threshold Effects in Selected ASEAN Countries

A Dynamic Analysis of the Twin-Deficit Hypothesis: the Case of a Developing Country

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