Nexus between Fiscal Deficit and Growth in Selected Asian Economics - A Panel ARDL Analysis

Wong, Joe Yu (2024) Nexus between Fiscal Deficit and Growth in Selected Asian Economics - A Panel ARDL Analysis. Final Year Project (Bachelor), Tunku Abdul Rahman University of Management and Technology.

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Abstract

This study investigates the relationship between fiscal deficit and economic growth, as well as explores the long-term connection between fiscal and current account deficits across South Korea, Japan, Singapore, China, India, Indonesia, Malaysia, Thailand, Vietnam, and the Philippines. Using panel ARDL and Pairwise Dumitrescu Hurlin panel causality tests with annual time series data from 2000 to 2022, the research assesses the implications of fiscal policies on economic dynamics. The findings reveal complex relationships beyond traditional Keynesian or Ricardian Equivalence Hypothesis frameworks, with nuanced interactions between GDP, current account balance, foreign direct investment, interest rates, inflation, and budget deficits. Additionally, the study examines the existence of twin deficits, highlighting a positive correlation between budget deficits and current account balances, aligning with aspects of Keynesian theory. Policy implications underscore the importance of sustainable fiscal policies, tax structure reform, and fostering an environment conducive to foreign direct investment. Moreover, future research suggestions advocate for longitudinal studies, comparative analyses among countries, and the inclusion of additional variables such as money supply and taxation to deepen understanding and inform policy formulation. This study contributes to the ongoing discourse on fiscal policy, economic growth, and the twin deficit phenomenon, offering insights for policymakers and researchers alike.