Structural breaks and twin deficits hypothesis in African countries

The study examines the twin deficits hypothesis in a sample of twelve African countries for the period between 1980 and 2009. These countries have experienced both the current account and the fiscal deficits, among others, that prompted an introduction of structural reforms. The paper explores long-run relationship between the series and their short-run dynamics within the context of endogenously determined structural breaks. The identified dates are generally associated with external factors that include commodity price boom and burst cycles that the countries heavily depend on. The estimated results for eight of the countries indicate that there is a positive relationship between the current account and fiscal deficits and therefore, support the twin deficits hypothesis. Results for the remaining four countries of Ethiopia, Kenya, South Africa and Uganda, on the other hand, show that the relationship between the two is negative.