The Dynamic Link Between Budget and Current Account Balance: Evidence from Selected Upper & Middle Income Countries (A Panel ARDL Approach)

Abstract

This study elaborates the connection between BD and CAD in selected upper-middle-income countries (UMC’s) by employing the panel data over the period from 2000 to 2020. This paper also tries to evaluate that weather the theory of Ricardian Equivalence or Keynesian Approach exists in case of selected upper-middle-income countries. First, we would apply the ADF approach to check the stationarity between the variable. After that, ARDL econometrics approach is adopted in order to check the long-run and short- run association among Current Account Balances (CAB), Fiscal Deficit (FD), Gross Fixed Capital Formation (GFCF), Real Effective Exchange Rate (REER), GDP Per Capita Growth (GDPPCG) and Trade. The findings showed that FD, REER, GDPPCG and trade have positive impact on CAB. While, in the long-run GFCF affects CAB negatively. This paper also pointed out that the Keynesian Theory is more suitable for selected upper-middle-income economies.