An Analysis of Twin Deficit Hypothesis by Using the Mundell Fleming Model

  • Dr. Hassan Jawad Soomro et al.

Abstract

In recent years, many researchers have conducted research to check the validity of twin deficit
hypothesis, there are two main methods to check the twin deficit’s validity, one of them is to check it
through proper and all channels or links which are causing to shift one deficit’s effect on the other
end(e.g. budget deficit ‘s effect on current account balance is through exchange rate and interest rate.)
while the other way is to check it through the both ends or without internal links like exchange rate and
interest rate etc. The data for the paper was collected through the secondary sources. We have taken the
data of United States, United Kingdom, Austria, India and Pakistan. Out of which India and Pakistan are
developing and remaining are developed.
Data analyzed through the E-views software. For the regression analysis SPSS 21 was used to check out
twin deficit hypothesis. We have checked the twin deficit hypothesis’ validity in 16 countries’ cross
sectional data, some of the countries are categorized as most corrupt and some of them as least corrupt
by HDI and WDI. Finally we can conclude that there is twin deficit in least corrupt countries while twin
divergence in most corrupt countries.
In recent years, many researchers have conducted research to check the validity of twin deficit
hypothesis, there are two main methods to check the twin deficit’s validity, one of them is to check it
through proper and all channels or links which are causing to shift one deficit’s effect on the other
end(e.g. budget deficit ‘s effect on current account balance is through exchange rate and interest rate.)
while the other way is to check it through the both ends or without internal links like exchange rate and
interest rate etc. The data for the paper was collected through the secondary sources. We have taken the
data of United States, United Kingdom, Austria, India and Pakistan. Out of which India and Pakistan are
developing and remaining are developed.
Data analyzed through the E-views software. For the regression analysis SPSS 21 was used to check out
twin deficit hypothesis. We have checked the twin deficit hypothesis’ validity in 16 countries’ cross
sectional data, some of the countries are categorized as most corrupt and some of them as least corrupt
by HDI and WDI. Finally we can conclude that there is twin deficit in least corrupt countries while twin
divergence in most corrupt countries.

Published
2020-02-16
Section
Articles