International Journal of Business and Economics Research

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Testing the Twin Deficit Hypothesis for Kenya 1970-2012

Received: 04 October 2014    Accepted: 14 October 2014    Published: 30 October 2014
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Abstract

The Twin Deficit Hypothesis (TDH) is an economic proposition suggesting that there exists a positive causal association between Budget deficit and Current account deficit. This assertion has been the subject of debate in the scholarly and policy front. However, most of the already existing literature on the TDH has focused on already developed economies. Majority of this literature carried out bivariate analysis using annual data. This study investigates the TDH nexus for Kenya using quarterly data spanning from 1970Q1 - 2012Q1 in a multivariate approach. The study employed various econometric tests including Johansen & Juselius cointergration tests, Vector Auto Regression and Toda- Yamamoto’s Granger causality test. The study also estimated the Impulse response functions and Variance decomposition. The results indicate that the TDH does exist in Kenya in a multivariate environment as opposed to directly between budget deficits and current account deficits. The study proposes that the government should formulate adequate fiscal and monetary policies that will effectively manage the country expenditure and revenue. The government should also look into ways of increasing its revenues and reducing expenditures.

DOI 10.11648/j.ijber.20140305.11
Published in International Journal of Business and Economics Research (Volume 3, Issue 5, October 2014)
Page(s) 160-169
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This is an Open Access article, distributed under the terms of the Creative Commons Attribution 4.0 International License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution and reproduction in any medium or format, provided the original work is properly cited.

Copyright

Copyright © The Author(s), 2024. Published by Science Publishing Group

Keywords

Twin Deficit Hypothesis, Budget Deficit, Current Account Deficit

References
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Author Information
  • Department of Applied Economics, Kenyatta University, Nairobi, Kenya

  • Department of Applied Economics, Kenyatta University, Nairobi, Kenya

  • Department of Applied Economics, Kenyatta University, Nairobi, Kenya

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  • APA Style

    Erastus Kaiba Njoroge, George Kosimbei, Julius Korir. (2014). Testing the Twin Deficit Hypothesis for Kenya 1970-2012. International Journal of Business and Economics Research, 3(5), 160-169. https://doi.org/10.11648/j.ijber.20140305.11

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    Erastus Kaiba Njoroge; George Kosimbei; Julius Korir. Testing the Twin Deficit Hypothesis for Kenya 1970-2012. Int. J. Bus. Econ. Res. 2014, 3(5), 160-169. doi: 10.11648/j.ijber.20140305.11

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    AMA Style

    Erastus Kaiba Njoroge, George Kosimbei, Julius Korir. Testing the Twin Deficit Hypothesis for Kenya 1970-2012. Int J Bus Econ Res. 2014;3(5):160-169. doi: 10.11648/j.ijber.20140305.11

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  • @article{10.11648/j.ijber.20140305.11,
      author = {Erastus Kaiba Njoroge and George Kosimbei and Julius Korir},
      title = {Testing the Twin Deficit Hypothesis for Kenya 1970-2012},
      journal = {International Journal of Business and Economics Research},
      volume = {3},
      number = {5},
      pages = {160-169},
      doi = {10.11648/j.ijber.20140305.11},
      url = {https://doi.org/10.11648/j.ijber.20140305.11},
      eprint = {https://download.sciencepg.com/pdf/10.11648.j.ijber.20140305.11},
      abstract = {The Twin Deficit Hypothesis (TDH) is an economic proposition suggesting that there exists a positive causal association between Budget deficit and Current account deficit. This assertion has been the subject of debate in the scholarly and policy front. However, most of the already existing literature on the TDH has focused on already developed economies. Majority of this literature carried out bivariate analysis using annual data. This study investigates the TDH nexus for Kenya using quarterly data spanning from 1970Q1 - 2012Q1 in a multivariate approach. The study employed various econometric tests including Johansen & Juselius cointergration tests, Vector Auto Regression and Toda- Yamamoto’s Granger causality test. The study also estimated the Impulse response functions and Variance decomposition. The results indicate that the TDH does exist in Kenya in a multivariate environment as opposed to directly between budget deficits and current account deficits. The study proposes that the government should formulate adequate fiscal and monetary policies that will effectively manage the country expenditure and revenue. The government should also look into ways of increasing its revenues and reducing expenditures.},
     year = {2014}
    }
    

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    T1  - Testing the Twin Deficit Hypothesis for Kenya 1970-2012
    AU  - Erastus Kaiba Njoroge
    AU  - George Kosimbei
    AU  - Julius Korir
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    DO  - 10.11648/j.ijber.20140305.11
    T2  - International Journal of Business and Economics Research
    JF  - International Journal of Business and Economics Research
    JO  - International Journal of Business and Economics Research
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    PB  - Science Publishing Group
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    AB  - The Twin Deficit Hypothesis (TDH) is an economic proposition suggesting that there exists a positive causal association between Budget deficit and Current account deficit. This assertion has been the subject of debate in the scholarly and policy front. However, most of the already existing literature on the TDH has focused on already developed economies. Majority of this literature carried out bivariate analysis using annual data. This study investigates the TDH nexus for Kenya using quarterly data spanning from 1970Q1 - 2012Q1 in a multivariate approach. The study employed various econometric tests including Johansen & Juselius cointergration tests, Vector Auto Regression and Toda- Yamamoto’s Granger causality test. The study also estimated the Impulse response functions and Variance decomposition. The results indicate that the TDH does exist in Kenya in a multivariate environment as opposed to directly between budget deficits and current account deficits. The study proposes that the government should formulate adequate fiscal and monetary policies that will effectively manage the country expenditure and revenue. The government should also look into ways of increasing its revenues and reducing expenditures.
    VL  - 3
    IS  - 5
    ER  - 

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