Twin Deficits: Apparition or Reality for Albania

6th International Scientific Conference – EMAN 2022 – Economics and Management: How to Cope With Disrupted Times, Ljubljana, Slovenia, March 24, 2022, CONFERENCE PROCEEDINGS, published by: Association of Economists and Managers of the Balkans, Belgrade, Serbia; ISBN 978-86-80194-57-8, ISSN 2683-4510

 

Abstract:

This study examines the validity of the Keynesian Twin Deficits hy­potheses (TDH) for Albania, using time series data of the span period from 2008 to 2021. The twin deficit hypothesis implies a long-run positive correla­tion running from the budget deficit to the current account deficit. For this, the Stationarity test, the Johansen co-integration test, the Granger causali­ty, and VEC model techniques are used to examine the long-run and short-run relationship between budget balance, current account deficit, and real growth rate. The empirical findings suggest that the Keynesian twin deficits hypothesis is not valid in the context of the Albanian economy, the budget deficit has a negative relationship to the current account deficit. The policy implication of the results is that prudent management of the fiscal budget of the government may not prove to be a suitable policy instrument for the evaluation of the current account balance improvement.

Keywords:

Fiscal deficit; Current account deficit; Economic growth; Granger causality; VECM

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