The impact of budget deficit on goods and services balances in Malaysia

This study examines external balance and budget in Malaysia. The unit root tests results show that the variables examined are the mixture of the stationary and non-stationary variables. The bounds testing results show that there is long-run relationship between external balance and its detenninants includes budget and also between budget and its detenninants includes external balance. Moreover, the results of the causality show that the current account targeting hypothesis and the Ricardian equivalence hypothesis dominate the relationship between external balance and budget. Short-run and long-run measures are needed to address external imbalances. A healthy external balance is important for sustainable economic growth