Testing the Triple Deficits in the Emerging Economies of Europe

Abstract

In the literature, increases in the ratio of current deficit to gross domestic product (GDP) are considered a crisis indicator, and budget and savings deficits are deemed to be significant causes of the current deficit. This situation, called the triple deficit hypothesis in the literature, is analyzed with the panel dynamic ordinary least square (panel DOLS) and fully modified ordinary least squares (FMOLS) using 2000–2019 data for Bulgaria, Czechia, Estonia, Latvia, Lithuania, Hungary, Malta, Romania, and Slovenia, which are generally referred to as the emerging economies of Europe. The results showed a long-term relationship between the variables. Accordingly, budget and private savings deficits increase the current deficit in the long term. The causality analysis found a reciprocal causal relationship between the variables, such that while budget and private savings deficits cause an increase in the current deficit, increases in the current deficit also increase the budget and private savings deficits. Thus, the triple deficit hypothesis is valid in these countries.

JEL: E60, F30, H62.