Twin Deficits Hypothesis as an Indication of Government Failure in Sierra Leone: An Empirical Investigation (1980-2018)

Öz

This paper examines the assertion of twin deficit hypothesis as an indication of government (policy) failure in Sierra Leone through the utilisation of relevant variables from 1980 – 2018. The paper is considered very important, with its application to the economy of Sierra Leone, which seems to have battled with structural problems, particularly policy failures, as manifested through over-burdened current account and fiscal deficit, which is presently overshadowing efforts of changedregime to make headway with planned developmental goals. Theoretical and empirical literature was reviewed in relation to the twin deficit hypothesis. Empirical outcome using the Fully Modified Ordinary Least Squares (FMOLS) failed to reject the twin deficit hypothesis; an indication that fiscal deficit is partly responsible for the negative current account position in Sierra Leone. Evidence from the outcome is consistent with expectation for a small open economy [Sierra Leone], burdened with failed institutional governance policies in areas connected with unproductive real sector and high lending rates, considered as disincentive to private sector investments. To address the problem, policy recommendations have been proposed, pointing to a boost in real sector activities – this will help facilitate growth and mobilisation drive to improve domestic revenue collection, also channelled through the Treasury Single Account (TSA) for effective monitoring. Conscious efforts should be made to stepup operations that deter corruption, while firming up efforts to to boost exports through competitive business operations.

Anahtar Kelimeler

• Twin deficit hypothesis,government failure,current account balance,fiscal deficit,policy shocks

Kaynakça

1. Abell, J. (1990), Twin deficits during the 1980s: An empirical investigation, Journal of Macroeconomics, Vol. 12, 81–96.
2. Bangura, A., Tarawalie, A.B., Fofanah, L., & Macarthy, S. (2016). Macroeconomic determinants of budget deficit: Evidence from Sierra Leone. International Journal of Economic Perspectives, Vol. 10(1), 5–13
3. Barro, R. (1989). The Ricardian approach to budget deficits”, Journal of Economic Perspectives, 3(2), 37–52.
4. Cavallo, M. (2005). Understanding the twin deficits: New approaches, new results. Federal Reserve Bank of San Francisco Economic Letter, No. 16.
5. Chowdhary, K. and Saleh, A. S. (2007). Testing the Keynesian proposition of twin deficits in the presence of trade liberalization: Evidence from Sri Lanka. Economics Working Papers.
6. Chunda, S.M. (2018). Diaspora businesses in Africa: Survival and sustainability. In, Hack-Polay, D., and Siwale, J. (Eds.) African Diaspora Direct Investment. Palgrave Macmillan, Cham. doi: 10.1007/978-3-319-72047-0_8.
7. Conteh, P.S. (2016). The Credibility of Government Budget: The Case of Sierra Leone. PhD Thesis, University of Walden USA.
8. Cunningham, S. (2011). Understanding market failures in an economic development context. Mesopartner Monograph 4: Pretoria, South Africa.

9. Darrat, A. F. (1988). Have large budget deficits caused rising trade deficit? Southern Economics Journal, 54, 879-887.
10. Dudley, William C. & McKelvey, E. F. (2004). The US budget outlook: a surplus of deficits. Global Economic Paper 106, Goldman Sachs, New York.
11. Epaphra, M. (2017). The twin deficits hypothesis: an empirical analysis for Tanzania. The Romanian Economic Journal, Vol. 20(65), 2–34.
12. Fleming, M. J. (1962). Domestic financial policies under fixed and floating exchange rates, IMF Staff Papers 9, 369-379.
13. Haug, A. A. (1996). Blanchard’s model of consumption: An empirical study. Journal of Business & Economic Statistics, 14(2), 169–177. doi: 0.2307/1392428.
14. Jackson, E.A. (forthcoming). Hermeneutics of Ceteris Paribus in the African Context. Jackson, E.A. (2019). Systemic health care failure as a symptom of market failure in Sierra Leone. South African Journal of Public Health, 3(4), 72-78. doi: 10.7196/SHS.2019.v3.i4.100.
15. Jackson, E.A. and Jabbie, M. (2019). Understanding market failure in the developing country context. In, Walter L. Filho (eds), Decent Work and Economic Growth: Encyclopedia of Sustainable Development Goals (Online First). Springer Nature, Cham. doi: 10.1007/978-3-319-71058-7_44-1.
16. Jackson, E. A. (2017). Economic methodology: paradox of ceteris paribus (cp) law in the context of Sierra Leone. Method(e)s: African Review of Social Sciences Methodology, 2(1-2), 31–40. doi: 10.1080/23754745. 2017.1354553.
17. Jackson, E.A. (2016). Phronesis and resource curse hypothesis in post-independent Sierra Leone. Ilorin Journal of Economic Policy, 3(1), 1–10.
18. Jackson, E.A., Jabbie, M. and Tamuke, E. (forthcoming). Dynamic effect of inflation shocks in Sierra Leone: An empirical analysis (2007M01 – 2019M03).
19. Jones, Y.M. (2014). Debt overhand and natural resources: Revisiting the resource curse hypothesis. PhD Thesis, Birkbeck College, University of London.
20. Kearney, C. and Monadjemi, M. (1990). Fiscal policy and current account performance: international evidence on the twin deficits. Journal of Macroeconomics, 12(2), 197–219. doi: 10.1016/0164-0704(90)90029-A.
21. Kılınç, M., Tunç C. & Yörükoğlu, M. (2014). Twin stability problem: Joint issues of high current account deficit and high inflation. Central Bank of the Republic of Turkey, BIS Working Paper No. 89. Retrieved from: https:// www.bis.org/publ/bppdf/bispap89z.pdf.
22. Kim, S. and Roubini, N. (2008). Twin deficit or twin divergence? fiscal policy, current account and real exchange rate in the U.S. Journal of International Economics, 74, 362–383.
23. Korsu, R.D. (2014). The inflationary effects of fiscal deficit in Sierra Leone: A simulation approach. African Economic Research Consortium (AERC), Research Paper No. 290.
24. Lau, E. and Baharumshah, A. Z. (2006). Twin deficits hypothesis in SEACEN Countries: A panel data analysis of relationships between public budget and current account deficits. Applied Econometrics and International Development, 6(2), 213–226.
25. Maddala G. S. & Kim I.M. (1998). Unit Root, Cointegration and Structural Change. 1st ed. New York: Cambridge University Press.
26. Messner, D. & Meyer-Stamer, J. 1992. Recipe for success: strong state and strong enterprises. Development and Cooperation, 2.
27. Mundell, R. A. (1963). Capital mobility and stabilization policy under fixed and flexible exchange rates. Canadian Journal of Economics and Political Science, 29, 475–85.
28. Olanipekun, D. B. (2012). A bound testing analysis of budget deficits and current account balance in Nigeria 19602008. International Business Management, 6(4), 408–416.
29. Sakyi, D. & Opoku, E.E.O. (2016). The twin deficits hypothesis in developing countries: Empirical evidence for Ghana. Working Paper, International Growth Centre (IGC). Retrieved from: https://www.theigc.org/wpcontent/uploads/2016/09/Sakyi-Opoku-2016-working-paper.pdf.
30. Suresh, K.G. and Tiwari, A. K. (2014). A Structural VAR (SVAR) analysis of fiscal shocks on current accounts in India. Macroeconomics and Finance in Emerging Market Economies, 7(1), 140–153.
31. Tarawalie, A.B. (2014). Fiscal deficits and current account imbalances: Evidence from Sierra Leone. International of Business and Social Studies, 5(8), 256–269.
32. Thomas, R.A. (2018). IMF confirms suspension of funding as APC government fails to generate revenue. Retrieved from: https://www.thesierraleonetelegraph.com/imf-confirms-suspension-of-funding-as-apc-government-failsto-generate-revenue/.
33. Toda, H.Y. & T. Yamamoto, 1995. Statistical inference in vector auto-regressions with possibly integrated process. Journal of Economics, 66, 225–250.
34. Uz, I. (2010). Determinants of Current Account: The relationship between internal and external balances in Turkey. Applied Econometrics and International Development, 10(2), 115–126.
35. United Nations. (2011). About Sierra Leone. Retrieved from: https: www.sl.undp.org/content/sierraleone/en/home/ countryinfo/.
36. Vyshnyak, O. (2000). Twin deficit hypothesis: the case of Ukraine. Master’s Thesis, National University of Kyiv – Mohyla Academy.
37. WAMI Occasional Paper. (2013). Fiscal and monetary policy coordination in the WAMZ: implications for member states’ performance on the convergence criteria, 1(4), 1–4.
38. Warburton, C.E.S. and Jackson, E.A. (forthcoming). Monetary policy responses to exogenous perturbations: the case of a small open economy (2007-2018).
39. Warburton, C.E.S., (2013). When markets fail: asset price, government expenditures, and the velocity of money. Applied Econometrics and International Development, Euro-American Association of Economic Development, 13(2), 73–92.
40. Winston, C. (2006). Government failure versus market failure: macroeconomics policy research and government performance. AEI-Brookings Joint Center for Regulatory Studies, the American Enterprise Institute for Public Policy Research, Brookings Institution, Washington, D.C.
41. World Bank. (2018). Reviving Urban Development: the importance of freetown for the national economy. Sierra Leone Economic Update, Edition No. 1. Retrieved from: http://documents.worldbank.org/curated/ en/304841528737912303/pdf/127049-WP-PUBLIC-SierraLeoneEconomicUpdatev.pdf.
42. Zayid, J. (2018). Sierra Leone – African Economic Outlook. Retrieved from: https://www.afdb.org/fileadmin/ uploads/afdb/Documents/Generic-Documents/country_notes/Sierra_Leone_country_note.pdf.