Budget deficit and current account deficit in case of South Africa

Abstract

This article investigates the relationship between budget deficit and current account deficit using ARDL bound testing approach for the developing country South Africa over the period of 1990–2018 featured with liquidity constraints and decreasing consumption. The results of the study confirm the long-run and short-run cointegrating relationship between the two deficits and accept Keynesian preposition and do not find any evidence in favor of Ricardian equivalence hypothesis based on these data. The other control variables used in this model found to have both long-run and short-run relationship with BD. The results of Granger causality reveal bidirectional causality between budget deficit and current account deficit and unidirectional causality from INT, REER, and INF to budget deficit and current account deficit. From the policy point of view, economic integration and macroeconomic stability are viewed as supportive in accomplishing an ideal growth with both external and internal stability.