The paper examines the causal relationship between budget deficit and trade deficit by using an innovative econometric methodology to study the direction of causality between the two variables. We apply our methodology, based on the Tada-Yamamoto test for causality, to time-series data for the period 1987:1-2003:2 for Turkey. The empirical results show that there is a unidirectional causal relationship between budget deficits and trade deficits. The causality runs from budget deficits to trade deficits.
Article Language: Turkish English