The Twin Deficits Phenomenon: Evidence From Turkey

This paper examines the twin deficits hypothesis, i.e., a causal relationship between the budget and current account deficits for Turkey between 1989-2008 by using co-integration methodology and by estimating an error correction model. The analysis showed that there is a long-run relationship between the two deficits. Overall, the evidence shows that budget deficits significantly contribute to a deterioration of the current account. Therefore, we have concluded that the twin deficit hypothesis holds for Turkey during the 1989-2008.