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LONG-RUN LINKAGE BETWEEN BUDGET DEFICIT AND TRADE DEFICIT IN LEBANON: RESULTS FROM THE UECM AND BOUNDS TESTS

International Journal of Economics, Management and Accounting

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Title LONG-RUN LINKAGE BETWEEN BUDGET DEFICIT AND TRADE DEFICIT IN LEBANON: RESULTS FROM THE UECM AND BOUNDS TESTS
 
Creator Saleh, Ali Salman; School of Business, Monash University Malaysia, 2 Jalan Kolej, Bandar Sunway, 46150 Petaling Jaya, Selangor Darul Ehsan, Malaysia
 
Description This paper examines the linkage between budget deficit and trade deficit for Lebanon during the period from 1975 to 2003. The purpose is to test the validity of the Keynesian proposition and the Ricardian equivalence in the case of Lebanon. A robust econometric framework called the unrestricted error correction model (UECM) and a cointegration test called the bounds test are used to examine whether budget deficit and trade deficit are cointegrated. The Granger causality test shows that causality runs from trade deficit to budget deficit and the relationship is positive and statistically significant. The empirical analysis in this paper partially supports the Keynesian view that there is a linkage between trade deficit and budget deficit but the direction of causality is reversed which is consistent with many other empirical studies. The result suggests that any policy measures to reduce the trade deficit in Lebanon could well assist in reducing the Lebanese budget deficit.JEL classification: E62Key words: Trade deficit, Cointegration, Lebanon
 
Publisher Kulliyyah of Economics and Management Sciences
 
Contributor —
 
Date 2013-03-01
 
Type info:eu-repo/semantics/article
info:eu-repo/semantics/publishedVersion
Peer-reviewed Article
 
Format application/pdf
 
Identifier http://journals.iium.edu.my/enmjournal/index.php/enmj/article/view/117
 
Source International Journal of Economics, Management and Accounting; Vol 14, No 1 (2006)
 
Language eng
 
Relation http://journals.iium.edu.my/enmjournal/index.php/enmj/article/view/117/99