Relevance of Twin Deficit Hypotheses: An Econometric Analysis with Reference to India

Abstract

Current study examines the relevance of twin deficit hypothesis in Indian context by considering the endogenously determined structural breaks in both unit root and cointegration tests. The cointegration analysis shows that there is no long term relationship between the study variables. But the Granger causality test results indicate that bidirectional granger causality is running between the variables. Results showed no long run relationship between the variables; twin divergence in the long run, while in the short term, variables are related. The findings of the study are based on data for the period 1973-1974 to 2013-2014.

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