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Twin Deficits Hypothesis as an Indication of Government Failure in Sierra Leone: An Empirical Investigation (1980-2018)

Author

Listed:
  • Emerson JACKSON

    (Doctoral Researcher, Centre of West African Studies, University of Birmingham, Birmingham, United Kingdom; Bank of Sierra Leone, Freetown, Sierra Leone)

  • Mohamed JABBIE

    (Financial Analyst, Bank of Sierra Leone, Freetown, Sierra Leone, Freetown, Sierra Leone)

Abstract
This paper examines the assertion of twin deficit hypothesis as an indication of government (policy) failure in Sierra Leone through the utilisation of relevant variables from 1980 – 2018. The paper is considered very important, with its application to the economy of Sierra Leone, which seems to have battled with structural problems, particularly policy failures, as manifested through over-burdened current account and fiscal deficit, which is presently overshadowing efforts of changedregime to make headway with planned developmental goals. Theoretical and empirical literature was reviewed in relation to the twin deficit hypothesis. Empirical outcome using the Fully Modified Ordinary Least Squares (FMOLS) failed to reject the twin deficit hypothesis; an indication that fiscal deficit is partly responsible for the negative current account position in Sierra Leone. Evidence from the outcome is consistent with expectation for a small open economy [Sierra Leone], burdened with failed institutional governance policies in areas connected with unproductive real sector and high lending rates, considered as disincentive to private sector investments. To address the problem, policy recommendations have been proposed, pointing to a boost in real sector activities – this will help facilitate growth and mobilisation drive to improve domestic revenue collection, also channelled through the Treasury Single Account (TSA) for effective monitoring. Conscious efforts should be made to stepup operations that deter corruption, while firming up efforts to to boost exports through competitive business operations.

Suggested Citation

  • Emerson JACKSON & Mohamed JABBIE, 2020. "Twin Deficits Hypothesis as an Indication of Government Failure in Sierra Leone: An Empirical Investigation (1980-2018)," Journal of Economic Policy Researches, Istanbul University, Faculty of Economics, vol. 7(1), pages 42-68, January.
    • Handle: RePEc:ist:iujepr:v:60:y:2020:i:1:p:43-68
    DOI: 10.26650/JEPR658440
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    References listed on IDEAS

    as
    1. Jackson, Emerson Abraham & Jabbie, Mohamed, 2019. "Understanding Market Failure in the Developing Country Context," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, pages 1-10.
    2. Manamba Epaphra, 0. "The Twin Deficits Hypothesis: An Empirical Analysis for Tanzania," Romanian Economic Journal, Department of International Business and Economics from the Academy of Economic Studies Bucharest, vol. 20(65), pages 2-34, September.
    3. Chowdhury, Khorshed & Saleh, Ali Salman, 2007. "Testing the Keynesian Proposition of Twin Deficits in the Presence of Trade Liberalisation: Evidence from Sri Lanka after War: the case of a bridge too far?," Economics Working Papers wp07-09, School of Economics, University of Wollongong, NSW, Australia.
    4. Suresh K.G. & Aviral Kumar Tiwari, 2014. "A Structural VAR (SVAR) analysis of fiscal shocks on current accounts in India," Macroeconomics and Finance in Emerging Market Economies, Taylor & Francis Journals, vol. 7(1), pages 140-153, March.
    5. Christopher E.S. Warburton & Emerson Abraham Jackson, 2020. "Monetary Policy Responses to Exogenous Perturbations: The Case of a Small Open Economy (2007-2018)," PSL Quarterly Review, Economia civile, vol. 73(293), pages 181-201.
    6. Jackson, Emerson Abraham, 2016. "Phronesis and Resource Curse Hypothesis in Post-Independent Sierra Leone," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 3, pages 1-11.
    7. Toda, Hiro Y. & Yamamoto, Taku, 1995. "Statistical inference in vector autoregressions with possibly integrated processes," Journal of Econometrics, Elsevier, vol. 66(1-2), pages 225-250.
    8. Abell, John D., 1990. "Twin deficits during the 1980s: An empirical investigation," Journal of Macroeconomics, Elsevier, vol. 12(1), pages 81-96.
    9. Jackson, Emerson Abraham, 2019. "Systemic health care failure as a symptom of Market Failure in Sierra Leone," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, issue Forthcomi.
    10. Idil UZ, 2010. "DETERMINANTS OF CURRENT ACCOUNT: The Relation between Internal and External Balances in Turkey," Applied Econometrics and International Development, Euro-American Association of Economic Development, vol. 10(2).
    11. Kearney, Colm & Monadjemi, Mehdi, 1990. "Fiscal policy and current account performance: International evidence on the twin deficits," Journal of Macroeconomics, Elsevier, vol. 12(2), pages 197-219.
    12. Kim, Soyoung & Roubini, Nouriel, 2008. "Twin deficit or twin divergence? Fiscal policy, current account, and real exchange rate in the U.S," Journal of International Economics, Elsevier, vol. 74(2), pages 362-383, March.
    13. Lau, E. & Baharumshah, A. Z., 2006. "Twin Deficits Hypothesis in SEACEN Countries: A Panel Data Analysis of Relationships between Public Budget and Current Account Deficits," Applied Econometrics and International Development, Euro-American Association of Economic Development, vol. 6(2).
    14. WARBURTON, Christopher E.S., 2013. "When Markets Fail: Asset Prices, Government Expenditures, and the Velocity of Money," Applied Econometrics and International Development, Euro-American Association of Economic Development, vol. 13(2), pages 73-92.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Emerson Abraham JACKSON & Mohamed JABBİE & Edmund TAMUKE & Augustine NGOMBU, 2020. "Adoption of Inflation Targeting in Sierra Leone: An Empirical Discourse," Journal of Economic Policy Researches, Istanbul University, Faculty of Economics, vol. 7(2), pages 21-50, July.
    2. Jackson, Emerson Abraham, 2020. "Importance of the Public Service in Achieving the UN SDGs," MPRA Paper 101806, University Library of Munich, Germany, revised 02 Jun 2020.
    3. Jackson, Emerson Abraham, 2021. "Sustainable Livelihood Framework for Equitable Living in Crisis of Global Pandemic," MPRA Paper 106951, University Library of Munich, Germany, revised 11 Feb 2021.
    4. Jackson, Emerson Abraham & Tamuke, Edmund, 2021. "The Science and Art of Communicating Fan Chart Uncertainty: The case of Inflation Outcome in Sierra Leone," MPRA Paper 105892, University Library of Munich, Germany, revised 05 Jan 2021.
    5. Jackson, Emerson Abraham, 2020. "Deconstructing Sustainable Livelihood Framework (SLF) for Equitable Living in Crisis of Global Pandemic," MPRA Paper 101977, University Library of Munich, Germany, revised 08 May 2020.
    6. JACKSON Emerson Abraham, 2021. "Financing Sustainable Development: Alleviating Livelihoods In The Forest Sector With Sierra Leone As A Case Study," Management of Sustainable Development, Lucian Blaga University of Sibiu, Faculty of Economic Sciences, vol. 13(2), pages 49-65, December.
    7. Emerson Abraham Jackson, 2021. "Forecasting COVID-19 Daily Contraction in Sierra Leone with Implications for Policy Formulation," Journal of Economic Policy Researches, Istanbul University, Faculty of Economics, vol. 8(1), pages 29-43, January.
    8. Ali, Amjad & Audi, Marc, 2023. "Analyzing the Impact of Foreign Capital Inflows on the Current Account Balance in Developing Economies: A Panel Data Approach," MPRA Paper 118173, University Library of Munich, Germany.
    9. Jackson, Emerson Abraham, 2022. "Modernising the education system to confront realities of 21st -century digital space in Sierra Leone: A practical discourse," MPRA Paper 112807, University Library of Munich, Germany, revised 22 Mar 2022.
    10. Jackson, Emerson Abraham, 2021. "Causal relationship between Education and Economic Growth in Sierra Leone," MPRA Paper 114686, University Library of Munich, Germany, revised 06 Apr 2021.
    11. Jackson, Emerson Abraham, 2023. "Education and Economic Growth: The Causal Relationship in Sierra Leone," MPRA Paper 117310, University Library of Munich, Germany, revised 09 May 2023.
    12. Jackson, Emerson Abraham & Tamuke, Edmund & Jabbie, Mohamed, 2019. "Disaggregated Short-Term Inflation Forecast (STIF) for Monetary Policy Decision in Sierra Leone," MPRA Paper 96735, University Library of Munich, Germany, revised 26 Nov 2019.

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    More about this item

    Keywords

    Twin deficit hypothesis; government failure; current account balance; fiscal deficit; policy shocks;
    All these keywords.

    JEL classification:

    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements

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