The purpose of this study is to revisit the twin deficit hypothesis (TDH) and provide insights into the transmission mechanism connecting budget deficits and current account deficits for five major South Asian countries, namely, India, Bangladesh, Pakistan Sri Lanka and Nepal for the period 1985-2016.,This study uses a multivariate framework including real interest rate, real exchange rate and real gross domestic product to avoid the possibility of incorrect inferences caused by omission of relevant mediating variables. The long-run relationship and causality are investigated through the autoregressive distributed lag bounds testing approach and Toda Yamamoto approach, respectively, for each individual country. The robustness of the results is assessed with the help of Westerlund’s cointegration test and group mean fully modified ordinary least squares (GM-FMOLS), group mean dynamic ordinary least square (GM-DOLS) and common correlated effect mean group (CCEMG) estimators in the panel framework.,Both time series and panel evidences indicate long-run relationship between budget balance (BB) and current account balance (CAB) together with the mediating variables. The results indicate bi-directional causation between the two balances for India and Bangladesh, TDH for Pakistan and Sri Lanka and the reverse causation from CAB to BB for Nepal. Regarding the transmission mechanism, the results indicate the absence of the causal chain postulated by Mundell–Fleming, which predicts that BB causes CAB via interest rate and exchange rate. A CCEMG estimate of the import demand function reveals a positive government spending elasticity of imports suggesting that BB affects CAB by direct impact through demand.,This study augments the twin deficit literature on South Asian countries by providing insights into the transmission mechanism connecting the BB and CAB. Moreover, the study provides robust evidences on the TDH by using both time series and panel data techniques.

中文翻译：

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重新审视南亚主要经济体的双赤字假设

本研究的目的是重新审视双赤字假设（TDH），并深入了解印度、孟加拉国、巴基斯坦、斯里兰卡和尼泊尔等五个南亚主要国家在此期间的预算赤字和经常账户赤字之间的传导机制。 1985-2016.,本研究采用包括实际利率、实际汇率和实际国内生产总值在内的多元框架，避免因遗漏相关中介变量而导致错误推论的可能性。对于每个国家，分别通过自回归分布式滞后边界测试方法和 Toda Yamamoto 方法调查长期关系和因果关系。借助 Westerlund 的协整检验和组均值完全修正普通最小二乘法 (GM-FMOLS)、组均值动态普通最小二乘法 (GM-DOLS) 和共同相关效应均值组 (CCEMG) 估计量评估结果的稳健性面板框架。时间序列和面板证据都表明预算余额（BB）和经常账户余额（CAB）以及中介变量之间存在长期关系。结果表明，印度和孟加拉国的两个平衡之间存在双向因果关系，巴基斯坦和斯里兰卡的 TDH 以及尼泊尔从 CAB 到 BB 的反向因果关系。关于传导机制，结果表明不存在 Mundell-Fleming 假设的因果链，该因果链预测 BB 通过利率和汇率导致 CAB。CCEMG 对进口需求函数的估计显示政府进口支出弹性为正，表明 BB 通过需求的直接影响影响 CAB。本研究通过深入了解连接 BB 和出租车。此外，该研究通过使用时间序列和面板数据技术为 TDH 提供了强有力的证据。