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Working paper

Twin Deficits and the Import Propensity in Post-Transition Countries

Габриш Х.

This article uses co-integration and related techniques to test for a long-run causal relationship between the fiscal and external deficits of three post-transition countries in Central and Eastern Europe. In addition, an import propensity model is tested by applying OLS and GMM. All theresults reject the Twin Deficits Hypothesis. Instead, the resultsdemonstrate that specific transition factors such asa high import intensity of exports and net capital inflows affect the trade balance.