INVESTIGATING THE CAUSAL RELATIONSHIP BETWEEN FISCAL DEFICITS AND CURRENT ACCOUNT IMBALANCE: EVIDENCE FROM NIGERIA AND SOUTH AFRICA, 1960 – 2011

TABLE OF CONTENTS
Cover Page
Title Page
Declaration
Approval
Dedication
Acknowledgement
Abstract
Table of Contents
List of Tables
List of Figures

CHAPTER ONE: INTRODUCTION
1.1       Background to the Study
1.2       Statement of the Problem
1.3       Objective of the Study
1.4       The Research Questions
1.5       The Research Hypothesis
1.6       Scope of the Study
1.7       Significance of the Study
1.8       The Operational Definition of Terms
            References

CHAPTER TWO: REVIEW OF RELATED LITERATURES
2.1       Theoretical Review
2.2       Empirical Review
2.3       Summary of Empirical Review
            References

CHAPTER THREE: RESEARCH METHODOLOGY
3.1       Research Design
3.2       Model Specification
3.3       Data Discussion
3.4       Data Source
3.5       Econometric Procedure
            References

CHAPTER FOUR: PRESENTATION AND ANALYSIS OF DATA
4.1       Summary Statistic of Variables used: Nigeria & South Africa
4.2       Unit Root Test
4.3       Test of Research Hypothesis
4.3.1    Hypothesis One
4.3.1.1 Using Nigeria Data
4.3.1.2 Using South Africa Data
4.3.2    Hypothesis Two
4.3.2.1 Using Nigeria Data Set
4.3.2.2 Using South Africa Data Set
4.3.3    Hypothesis Three
4.3.3.1 Using Nigeria Data Set
4.3.3.2 Using South Africa Data Set
4.3.4    Hypothesis Four
4.3.4.1 Using Nigeria Data Set
4.3.4.2 Using South Africa Data Set
4.3.5    Hypothesis Five
4.4       Complementary Results
4.4.1    Impulse Response Function for Nigeria and South Africa
4.4.2    Forecast Error Variation Decomposition Test
4.5       Stability Test
4.6       Discussion of Results
4.7       Comparative Analysis and Justification of Results
            References

CHAPTER FIVE: SUMMARY OF FINDINGS, CONCLUSION &RECOMMENDATIONS
5.1       Summary of Findings
5.2       Major Contributions to Knowledge
5.3       Conclusions
5.4       Recommendations
5.5       Suggestions for Further Research
            Bibliography
            Appendix


ABSTRACT
This study examines the empirical relationship between fiscal deficit and current account imbalance employing data for Nigeria and South Africa for the period of 1960 to 2011. We employ co-integration analysis and, VEC and VAR granger non causality process to investigate the existence of long-run and short term causalities for the economies under consideration. The results indicate no evidence of twin deficits hypothesis for both Nigeria and South Africa in the short-run. For Nigeria, evidence of twin deficits hypothesis is identified in the long-run. The absence of evidence of the twin deficits phenomenon for both Nigeria and South Africa in the short-run time frame, suggests that the Ricardian equivalence proposition (REP) holds for the economies under consideration within such time horizon. This concept is of the view that since people are rational, they know that the reduction in taxes, resulting from the government expansionary fiscal policy of tax cut or increase in public debt, is temporal and will save the extra disposable income to pay for the future higher taxes. This suggests that the national savings position will be sustained because the decrease in government savings represented by increased fiscal deepening will be equitably compensated by the additional precautionary private savings for expected future increase in taxes. This designates fiscal balance variable as exogenous to current account balance model and indicates lack of responsiveness of private consumption to fiscal impulse. This casts doubts on the efficacy of the use of fiscal policy in the management of external balance. This in effect suggests that fiscal policy should not be intended for improvement in current account balance or in the least should not be used in isolation to supervise developments in current account stance in the short-run for both Nigeria and South Africa. The identification of twin deficits hypothesis for Nigeria in the long-run suggests that use of fiscal policy in the management of external balance may be advisable, which in effect implies that fiscal policy may be intended for improvement in current account balance in the long-run. The hallmark contribution to knowledge by this study is the revelation from the results that intensity of Ricardian equivalence in any economy may further be dependent on the poverty level of its citizens and the level of per capita income in the economy.


CHAPTER ONE

INTRODUCTION
1.1 Background to the Study
The association between fiscal policy dynamics and the current account innovations started to draw the attention among academics, economists and policy makers alike by the 80’s when record budget deficit (BDEF) and current account deficit (CADEF) emerged in many countries, including the United States. For example, the possible link between fiscal deficits and current account deficits has spurred many studies analyzing the “twin deficit” h ypothesis, particularly for the case of the United States. For many countries where current account imbalances are particularly huge, a relevant question has been to what extent fiscal adjustment can contribute in resolving external imbalances.

Twin deficits hypothesis asserts that an increase in budget deficit will cause a similar increase in current account deficit. But the results of testing this hypothesis turned out different for different countries, and moreover, the results differ in the case of using different econometric techniques and model specifications for the same country data (Mukhtar, Zakaria and Ahmed, 2007). The close correlation observed between these two deficits does not imply any causal relation between.......

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Item Type: Ph.D Material  |  Attribute: 179 pages  |  Chapters: 1-5
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