The Current Account-budget Deficits Link in Sub-Saharan Africa Countries: A Dynamic Panel VAR Modeling
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Date
2008-06
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A.A.U
Abstract
Many economists have argued that prolonged fiscal expansions
Contribute to current account imbalances. The purpose of this paper is to
Explore this phenomenon in the case of Sub-Saharan Africa countries
During the period 1980 to 2007. In the framework of panel co integration
test, panel VAR Granger Causality analysis and a reduced-form
Consumption function, the paper evaluates the validity of the
Conventional (Keynesian) view and the Ricardian Equivalence Hypothesis is
In Sub-Saharan Africa economies. The major findings of this study are:
First, as a priori expectation, a unidirectional causality that runs from
Current account deficits to budget deficits (termed as current account
Targeting by summers (1988)) has been found for oil-importing Sub Saharan
Africa countries. In these countries exchange rate is found to be
The main mediating variable in linking the two deficits. Second, for oil exporting
Countries, while the findings from Granger causality test is in
Accordance with the Ricardian Equivalence Hypothesis, the restriction test from the estimation result of the reduced-form consumption function
Shows rejection of the pure Equivalence Hypothesis. One line of
Argument for the acceptance of the Keynesian Proposition for oil exporting
Countries is that a rising consumption (both private and
Government) fueled by rising oil revenues eventually leads to current
Account deterioration. A policy implication resulting from these findings
Is that managing the current account deficit as well as the debt burden
Offers a scope for improvement in the budget deficits.
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Keywords
A dynamic Panel VAR Modeling, Budget Deficits Link in Sub-Saharan