Dynamic Linkages And Granger Causality Between Trade And Budget Deficits: Evidence From Africa

This paper provides new evidence on the long-run relationship between trade and budget deficits in ten African countries over the quarterly period 1973:2 - 2005:4. In conformity with theoretical considerations, the analysis reveals that there is a positive long-run relationship between the trade deficit and the budget deficit; however, in the short run, the authors find weak evidence that these deficits are closely linked and that the budget deficit causes the trade deficit. The analysis finds that bidirectional long-run causality between deficits receives strong empirical support.