The Current Account-budget Deficits Link In Sub-saharan Africa Countries A Dynamic Panel Var Modeling

Many economists have argued that prolonged fiscal expansionsrnContribute to current account imbalances. The purpose of this paper is tornExplore this phenomenon in the case of Sub-Saharan Africa countriesrnDuring the period 1980 to 2007. In the framework of panel co integrationrntest, panel VAR Granger Causality analysis and a reduced-formrnConsumption function, the paper evaluates the validity of thernConventional (Keynesian) view and the Ricardian Equivalence Hypothesis isrnIn Sub-Saharan Africa economies. The major findings of this study are:rnFirst, as a priori expectation, a unidirectional causality that runs fromrnCurrent account deficits to budget deficits (termed as current accountrnTargeting by summers (1988)) has been found for oil-importing Sub SaharanrnAfrica countries. In these countries exchange rate is found to bernThe main mediating variable in linking the two deficits. Second, for oil exportingrnCountries, while the findings from Granger causality test is inrnAccordance with the Ricardian Equivalence Hypothesis, the restriction test from the estimation result of the reduced-form consumption functionrnrnShows rejection of the pure Equivalence Hypothesis. One line ofrnArgument for the acceptance of the Keynesian Proposition for oil exportingrnCountries is that a rising consumption (both private andrnGovernment) fueled by rising oil revenues eventually leads to currentrnAccount deterioration. A policy implication resulting from these findingsrnIs that managing the current account deficit as well as the debt burdenrnOffers a scope for improvement in the budget deficits.

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