Additionally, the research examines the Feldstein-Horioka hypothesis from 1980 about the connection between

saving and investment. By using cointegration analysis, this study demonstrates a lasting connection between

budget deficits and current account deficits, providing evidence for the Keynesian perspective. The findings

support the twin deficit theory's applicability to Jordan's economic situation and strengthen the Keynesian view

on the relationship between the current account, budget deficit, and investment. Moreover, the existence of a

negative correlation coefficient of less than 1 linking investment and saving supports the Feldstein-Horioka

hypothesis, pointing to Jordan's inclusion in international capital markets.

Key-Words: - Twin Deficit, Budget Deficits, Current Account Deficit, Feldstein-Horioka Hypothesis,

1980s to depict the phenomenon of transitioning

between budget deficits and current account deficits

in the United States. This literature review reveals

that the causal connections between budget deficits

and current account deficits are not confined solely

to the United States but extend to other regions as

well. During the 1990s, certain European nations,

including Germany and Sweden, confronted

analogous scenarios. The escalation of budget

deficits coincided with a depreciation in the real

specified timeframe vary between advanced and

developing economies.

the current account deficit, known as the "twin

deficit," has prompted academic discussion and

decline in capital flows (foreign direct investment)

owing to a potential economic recession, this paper

seeks to investigate the effects of budget deficits on

current account imbalances, independent of other

factors that influence the current account. The

sustainability of the external situation is

considerably worsened by further budgetary

increases.

will determine whether these fluctuations are pro-

cyclical or counter-cyclical. Therefore, this study

aims to elucidate the impact of fiscal policy on

Jordan's management of its external balance.

The Theoretical Underpinnings of the Twin Deficit

Hypothesis: The relationship between budget

Granger causality, Vamvoukas concluded that the

causal linkage from the budget deficit to the trade

deficit aligns with Keynes's proposition in both the

short and long term.

hypothesis is present in the MENA region in the

medium-term and diminishes slowly over time,

backing the traditional Keynesian belief that fiscal

investment, also refuting the presence of the

FeldsteinHorioka hypothesis in the MENA region.

Crucially, MENA governments need to lower

internal interest rates promptly to enhance the CAB.

Increasing the interest rate for private savings is

crucial to prevent negative impacts on their

economies from chronic fiscal deficits and current

account downturns. This assertion is additionally

budget deficit does not impact the trade deficit,

while other studies agree with the Keynesian view,

proposing a link between these deficits, where the

budget deficit causes the trade deficit. The current

study aims to clarify the fundamental dynamics

controlling the interaction of deficits in the

Jordanian economy and to explain the theoretical

framework relevant to this situation.

from 1970 to 2012 to investigate the twin deficit

The equation depicted above can be expressed as

follows, where S represents savings.

and economic dynamics about savings and

investment behavior.

Where ε is the error term.

The analysis employed in this study utilizes annual

imports, and often encompasses negative values

unsuitable for logarithmic transformation, the

its elasticity. Similarly, for negative figures, the

budget deficit was calculated by dividing revenues

by expenditures and then applying the natural

logarithmic transformation to obtain the budget

deficit's natural logarithm.

3.1 Stationarity Test

The first step of this investigation involves assessing

the stationarity level of all variables through the

application of the Dickey-Fuller test [15] to

ascertain their stationary status. The findings

presented in Table 1 demonstrate that the budget

deficit, current account deficit, and investment

exhibit a stationary behavior, denoted as I(0).

3.2 Cointegration Methodology

Given that the variables under investigation in this

obtained are detailed as follows:

imports, worsening the trade imbalance and

ultimately leading to a deficit. Moreover, an

increase in the budget deficit boosts overall demand

and raises the real interest rate, attracting more

foreign capital, which could lead to a strengthening

of the currency, higher imports, and a worsened

trade balance.

funding). During the investigation, around 80% of

investment activities in the Jordanian economy

relied on foreign savings. As a result, an increase of

1% in investment in the long run leads to a

corresponding rise of 0.80% in the current account

deficit. Additionally, a 1% increase in the budget

shortfall results in a 2.5% growth in the current

account shortfall, as funds for both spending and

the value of β deviates significantly from unity,

registering at 0.33. This departure implies an

implicit lack of close association between domestic

investment and domestic savings. Such a disparity

can be attributed to the pronounced degree of

international capital mobility. A β value

approximating unity would suggest a stronger

findings of this research aligned with [19], [20] and

[21].

References:

[1] Evans, P., and I. Hasan, Are Consumers

[3] Nazma Latif – Zaman and Maria N. DaCosta,

[6] Al-Sawaie, K. M., Jubran, A.M., Abbas, N.A.,

[19] Hussain, I., Hayat, U., Alam, Md Sh., Khan,

[21] Fouzdar, A. S., Saxena, S. P., Cogency of