Abstract:

There are various hypotheses that define the positive and negative effects of public external debt on investments and economic growth. In this context, excess debt and exclusion hypotheses, respectively, indicate that public external debt will negatively affect economic growth and investment. The validity of the two hypotheses mentioned in this study for Turkey in the period 1987-2017 was tested with a fully modified and dynamic square predictors. The findings of the study show that internal debt affects both investments and growth, while external debt affects only investments negatively. However, a meaningful relationship between public external debt services and private sector investments has not been achieved. Therefore, the exclusion hypothesis is not valid. Similarly, as there is no relationship between economic growth and foreign debt stock in Turkey, the hypothesis of excess debt is also invalid. The reasons for this situation are discussed.

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