Does Korea have twin deficits?

Abstract

Using the modified Wald test suggested by Toda and Yamamoto (1995), the study examines whether higher budget deficits lead to greater current account deficits in Korea. This test allows one not only to examine the general validity of twin deficits hypotheses, but also to predict future Korean external balance positions. The empirical results indicate that a unidirectional causal relation running from the current account deficit to the budget deficit is present in Korea.

Acknowledgement

The first author would like to thank The Center for Latin American Studies, University of Florida, for accommodating him while he was preparing this study.