The Twin Deficit Hypothesis in the MENA Region: Do Geopolitics Matter?

This paper examines the relationship between fiscal and external balances in MENA oil versus non-oil countries context of twin deficits hypothesis (TDH) using Panel Vector Autoregression- Generalized Methods Moments PVAR GMM estimation, Granger Causality IRFs. The essence this analysis is to assess vulnerability price dynamics regional geopolitics region. Results show that a twin-deficit problem exists oil-rich only while does not exist ones. affirms dependence results high geopolitical shocks automatically transmits balances. While TDH isn’t proven countries, problems result from longstanding structural factors. A reliance on tourism revenues remittances as main sources foreign currency receipts (together with poor tax administration enlarged current spending bills) makes those more vulnerable domestic shocks; reflected both growing account deficits. large imports sector relatively exporting capacity also contribute weakening accounts. policy recommendations for rely importance strengthening order diversify revenues. Adopting flexible exchange rates recommended decrease dynamics. For regions, consolidation, reforming administrations are crucial improve performance. Export-led growth strategies inclusive policies would improving accounts examined economies.