A Dynamic Analysis of Twin Deficits in South Asian Economies

Abstract

Developing countries have been consistently facing budget and current account deficits (twin deficits). South Asia is the second-largest region globally with heavy twin deficits. This study examines the presence of twin deficits in South Asian economies, including Bangladesh, Bhutan, India, the Maldives, Nepal, Pakistan, and Sri Lanka, for the period 1997-2024. We employed the pooled mean group autoregressive distributive lag (PMG-ARDL) approach for estimation. The empirical verdicts provide strong evidence of twin deficits in the South Asian economies. A significant budget deficit increases the current account deficit, while long-run GDP growth reduces it.