For a long time, the West African Economic and Monetary Union (WAEMU) countries
have been experiencing persistently high budget and current deficits. This study was
undertaken to empirically test the “Twin Deficits Hypothesis” in these countries. The
analysis was conducted within the framework of the Panel Vector autoregressive (VAR)
approach over the period 1975–2013. In contrast to the conventional view which claims
a one-way relationship between budget and current account deficits, the results show
that budget deficits lead to a deterioration in the current account balance, and vice
versa (bilateral relationship). We also found that budget deficits have an impact on
current account balance mainly through imports.
