Relationship between misery index and current deficit in developing countries

This study examines the relationship between the misery index and the current deficit in developing countries. Fragile five countries consist of Brazil, Indonesia, South Africa, India and Turkey are analyzed because this countries represent developing countries. In these countries with current deficit problems, the misery index is higher compared to developed countries. In the study, three different misery indexes are used: Okun's misery index consist of two variables, Barro and Hanke's misery index consist of four variables, and other the misery index consist of three variables (unemployment, growth and interest rates). Countries are analyzed first separately and then jointly. First of all, the stationarity of the variables are examined by the Fourier unit root test. The Fourier cointegration test is applied to investigate the long-term relationship between the variables that become stationary when the first difference is taken. Dynamic least squares method is used for estimation of the long-term coefficients. The bound test approach is used to investigate the long-term relationship between variables that are stationary at different levels. In the absence of long-term relationship, one of the Granger or Toda-Yamamoto causality tests is used taking into account the stationary of variables in order to investigate the causality relationship between the variables. The results show that there is an inverse relationship between misery index and current account deficit in all countries examined. There is unidirectional long-term relationship from the current deficit to the misery index in Brazil, South Africa and India. There is unidirectional long-term relationship from the misery index to the current deficit in Indonesia. There is bidirectional long-term relationship between misery index and current deficit in Turkey. Analysis of the average of countries indicate that there is bidirectional long-term relationship between the misery index and the current deficit.