Effect of Government Fiscal Deficits on Current Account Balance: The Case of Twin Deficits Hypothesis in Nigeria, 1970-2013

Authors

  • Umeora C. Emmanuel formerly Anambra State University
  • Ibenta Steve N. Nnamdi Azikiwe University

Keywords:

Twin Deficits Hypothesis, Current Account Balance, Ordinary Least Squares, Keynesian Model, Income Windfall and Exchange Rate.

Abstract

This study examined effects government fiscal deficits have on Current Account Balance which has balance of payments as its proxy. In macroeconomic systems, variables are known to be interlinked so that some have countervailing effects on others. For this reason, interest rate and exchange rate are incorporated into the study. Secondary data are collected from CBN Statistical Bulletin. Hypotheses are tested using Ordinary Least Squares (OLS) method. The results of the study show that government fiscal deficits do not affect current account balance indicating a possible absence of the existence of twin-deficits hypothesis in Nigeria. It also reported that exchange rate has significant positive effect on current account balance while interest rate has negative significant effect on current account balance. The study recommends that the government should curtail its annual persistent fiscal deficits. The same should be done to control trade deficits, exchange rate and interest rate. This is necessary because even if they are not linked to fiscal deficits, the economy is heavily import dependent that tends to bloat trade deficits.

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Author Biographies

Umeora C. Emmanuel, formerly Anambra State University

Ph.D. and Senior Lecturer, Banking and Finance Department, formerly Anambra State University now
Chukwuemeka Odumegwu Ojukwu University, Igbariam Campus, Anambra State, Nigeria

Ibenta Steve N., Nnamdi Azikiwe University

Professor of Finance and Banking and Dean, Faculty of Management Sciences, Nnamdi Azikiwe
University, Awka, Nigeria.

References

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Published

2015-12-31

How to Cite

Emmanuel, U. C., & N., I. S. (2015). Effect of Government Fiscal Deficits on Current Account Balance: The Case of Twin Deficits Hypothesis in Nigeria, 1970-2013. International Journal For Research In Business, Management And Accounting, 1(4), 1–12. Retrieved from https://ijrbma.com/index.php/bma/article/view/477

Issue

Vol. 1 No. 4 (2015): International Journal For Research In Business, Management And Accounting |ISSN: 2455-6114

Section

Articles

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