The Twin Deficit Phenomennon in Petroleum Economy: Evidence from Saudi Arabia

Conference Paper

2000

Alkswani, Mamdouh Alkhatib . 2000

This paper, unlike all other studies, is based on two principles. First, it investigates the relationship between the two deficits on petroleum economy where exports, government revenue, and income are closely linked with oil revenue. Second, this paper  tries to prove that even in petroleum economy, the Keynesian proposition is still partially valid. Budget deficit and trade deficit are linked, but the direction of the causality is reversed, because of the important role of the oil revenue in this economy, the trade deficit causes the  budget deficit.
The relationship between budget and trade deficits will be analyzed in the short and the long run by using three complementary approaches: the Error Correction Model, the Johansen Cointegration  and the Granger bivarite causality.
This research will be presented in four sections. Section II deals with the theoretical basis of the twin deficit phenomenon. Section III discusses the econometric methodology. Section IV provides the estimated results. Section V is reserved to the summary and concluding remarks
 

• Conference Location: ERF Seventh Annual Conference
• Conference Name: ERF REGION: Trends and Prospects for Growth and Human Development
• Sponsoring Organization: Economic Research Forum