Fiscal Deficit, Trade Deficit and Growth in ASEAN+3.

Abstract

The ambiguity of expansionary fiscal policy raises interest among researchers to explore further about the relationship between fiscal deficit, trade deficit, and economic growth. Several studies on the relationship between fiscal deficit and trade deficit, which also known as twin deficits, have different conclusions in every country. Likewise the impact of fiscal deficits on economic growth. This research aims to comprehensively examine the relationships between those three variables, starting with analyzing the impact of fiscal deficits on the trade deficit and continued by determining both impact of these deficits on economic growth in ASEAN +3 countries. By using a dynamic panel data analysis of the eight countries during 1993-2010, there are three findings i.e. 1) twin deficits hypothesis (TDH) holds only for China, 2) fiscal deficit has a positive impact on growth, and 3) trade deficit has a negative impact on the growth of countries in ASEAN +3.