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Hunt for Twin Deficits: Current Account and Fiscal Balance in Transition Economies

Aleksandr Gevorkyan


This paper is a critical effort assessing the twin deficits concept in the context of the transition economies of the Commonwealth of Independent States. Correlations between current account and fiscal balance must be interpreted with caution. Actual political economy circumstances in the region play important role in explaining external trade positions and public spending in both net exporter and net importer country groups. There are clearly two periods within a bigger transition time frame: early 1990's reforms and post Russian financial crisis through early 2000's. Cumulative weight of such factors, coupled with empirical evidence raises more questions than answers, offering no solid theoretical or empirical grounds for the case of twin deficits in the post-socialist economies of the CIS. Following standard and extended empirical analysis the paper identifies key policy guidelines for the selected transition economies. A more qualitative approach prompts an investigation into structural problems of transition, such as household consumption patterns and its relation to current account and nature of fiscal expenditure. That is the case in the post-socialist transforming economies with consumer societies.


Round Building


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