Budget Deficit and Economic Growth in BRICS Countries: Panel Approach

This paper examines the relationship between budget deficit and economic growth in Brazil, Russia, India, China, and South Africa. A panel autoregressive distributed lag (ARDL) technique was used to analyse the relationship between the variables, while the Pairwise Dumitrescu Hurlin panel causality tests were employed to determine the direction of causality among these variables. The findings for the long run reveal that the current account balance and exchange rate have a negative and significant relationship with the budget deficit. Gross domestic product, foreign direct investment, and total debt service have a positive and significant relationship with the budget deficit. There exists a causal relationship between the government budget deficit and the current account balance, and vice versa. The gross domestic product and foreign direct investment do cause the budget deficit. It is recommended that for the deficit to be reduced, there is a need to target gross domestic product and foreign direct investment first since they it will affect the deficit. Exchange rates should rise to lower the budget deficit, while total debt service needs to decrease the budget in BRICS countries.