Investigating locational asymmetry in the twin deficit hypothesis for the WAMZ countries

Abstract

ABSTRACT The study adopts the Quantile Autoregressive Distributed Lags (QARDL) method to examine the existence of locational asymmetry in the nexus between fiscal and current account deficits in the WAMZ zone. Results of the long run relationships using both variables as dependent variables, rejected the null hypotheses of parameter constancy across the quantiles, and established the variability of a twin deficit hypothesis across different quantiles. In the short run, the Keynesian view is validated for Gambia, Ghana, and Nigeria, whereas Serria Leone, Ghana, and Liberia indicated the Ricardian equivalence framework, suggesting the acceptance of twin divergence hypothesis. In addition, a causality analysis finds robust bi-directional causal evidence for the strong causal relationship along all specifications, validating the long run relationship established in the QARDL cointegration tests.