Bulletin of Business and Economics (BBE)

ISSN - 2414-1771 (Print)

ISSN - 2409-9368 (Online)

A Twin Deficit Hypothesis: The Case Study of Pakistan


Hammad Manzoor, Muhammad Zeeshan Younas, Rashid Mehmood, Muhammad Ali Rizwan


Manzoor, H., Younas, M. Z., Mahmood, R., and Rizwan, M. A. (2019). A Twin Deficit Hypothesis: The Case Study of Pakistan. Bulletin of Business and Economics, 8(3), 117-131.


This paper analyses the twin deficit reaction function for Pakistan economy covering the period of 1973-2017. Empirical analysis is based on Vector Autoregressive (VAR) technique with its extension impulse response functions and Granger causality. Results show that the trade deficits directly cause the budget deficits and the budget deficit influences the trade deficit through different channels. The most familiar linkage is causality flowing from budget deficits to inflation to rate of interest to capital inflows to exchange rate (currency appreciation) and finally the trade deficits.


Twin Deficit, VAR, Granger Causality, Impulse Response Function, Pakistan

Jel Code:

E31, F6, O4,

Article Type:

Research Paper




Research Foundation for Humanity (RFH)

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