Triple Deficit Hypothesis: A Panel ARDL and Dumitrescu-Hurlin Panel Causality forEast African Countries

Abstract

This paper aimed at examining the relevance of triple deficit hypothesis for East African countries, specifically assessing the dynamics of savings gap (SG), fiscal balance (FB) and current account balance (CAB). Secondary data from the International Monetary Fund (IMF)for the time period 2004 through 2018 were used. The study adopted Panel ARDL model and Dumitrescu-Hurlin panel granger causality analysis that allows capturing of slope heterogeneity among each member. The study findings revealed both fiscal balance and savings-investment gap to have a positive impact on current account balance for East African countries. However, the short run coefficients were not significant at both 5% and 10% levels of significant, implying that fiscal balance and savings-investment gap have no impact on current account balance in the short run, but the study further found evidence that the current account balance is on average -1.2991 in the short run for East African countries. Additionally, based on the current study, Dumitrescu-Hurlingranger causality results gave reasonable grounds to conclude that triple deficit hypothesis in East African countries does not hold.