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Do fiscal deficits influence current account? A case study of India

Parikh, A. and Rao, Bhaskara B. (2006) Do fiscal deficits influence current account? A case study of India. Review of Development Economics, 10 (3). pp. 492-505. ISSN 1363-6669

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This paper examines the effects of fiscal deficits on the current account deficits in the Indian economy. In many developing countries, fiscal deficits are mostly financed through monetization, causing crowding out of private investment expenditures. However, fiscal deficits in India are mostly financed through official borrowings from various external sources, leading to higher interest payments and outgoings on the external account. Such a policy could eventually precipitate balance of payments crises despite favorable trade account and real exchange rate. Data over three decades for the Indian economy show that, in addition to the real exchange rate and the ratio of private investment to GDP, fiscal deficits significantly contribute to the current account deficits.

Item Type: Journal Article
Subjects: H Social Sciences > HG Finance
Divisions: Faculty of Business and Economics (FBE) > School of Economics
Depositing User: Ms Neha Harakh
Date Deposited: 11 Dec 2006 21:32
Last Modified: 17 Jul 2012 02:08

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