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Erceg C.J., Guerrieri, L. and Gust, C. (2005) Expansionary Fiscal Shocks and the Current Account. International Finance Discussion Papers 825, Board of Governors of the Federal Reserve System, Washington DC.

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• TITLE: Testing the Twin Deficits Hypothesis: Effect of Fiscal Balance on Current Account Balance—A Panel Analysis of Sub-Saharan Africa

  AUTHORS: Godson Korbla Aloryito, Bernardin Senadza, Edward Nketiah-Amponsah

  KEYWORDS: Twin Deficits, Fiscal Deficit, Current Account Deficit, System GMM, Sub-Saharan Africa

  JOURNAL NAME: Modern Economy, Vol.7 No.9, August 12, 2016

  ABSTRACT: The twin deficits hypothesis holds if government’s fiscal deficit, through its impact on national saving and consumption, leads to a deterioration of the current account. The fiscal and current account deficits of most countries in Sub-Saharan Africa (SSA) appear relatively large or have been widening over the past several years in the face of positive output growth and steady decline in inflation. Using data for 41 countries from 2000 to 2012, we test the twin deficits hypothesis for SSA. Applying the system Generalised Method of Moments (GMM) estimation technique, the major conclusion drawn from the results indicates that fiscal deficits tend to improve the current account and vice versa, thereby rejecting the twin deficits hypothesis in favor of the twin divergence proposition. The findings, nonetheless, have policy relevance for the region.