Abstract:

The deficit in the current accounts balance is one of the most important problems for the Turkish economy, as in many developing countries. The main reason for the deficit in the current account balance in Turkey is the deficit in the foreign trade balance. While the increase in economic growth rate positively affects the national income level, it negatively affects the foreign trade and current account balance. In this study, quarterly data for the period 1998:1-2020:1 were used. With these data, the relationship between economic growth and current account balance is examined with ARDL (autoregressive lag distributed) approach. In order to investigate the long-term relationship between the variables, the ARDL model was preferred because the series were stationary at different levels. One of the other advantages of ARDL approach compared to other cointegration tests is that it gives effective results in samples with small number of observations. The other is that the determined lag lengths of the variables in the model are different. The stationarity of the series was tested by Augmented Dickey Fuller (ADF), Phillips-Perron (PP), and Ng-Perron (2001) unit root tests. In ADF test, since the null hypothesis might be falsely rejected, Phillips-Perron (1988) and Ng-Perron (2001) unit root tests were also conducted. According to the ARDL bound test results, there is a long-term relationship between the series. According to the long-term ARDL model’s estimation results, 1% increase in economic growth affects the current account deficit negatively by 0.45%. In the short run, a 1% increase in economic growth causes a 0.22% negative effect on the current account deficit. Short-term deviations in the series disappear after approximately 5.4 periods (16.5 months), and long-term equilibrium is achieved. Although the increases in economic growth in long and short-terms negatively affect the current deficit, economic growth is not the only reason for an increase in current deficit. According to the corrected results, the change in economic growth explains 32% of the change in current deficit. For this reason, while struggling with current deficit, the variables other than the economic growth (domestic savings, investments, research and development (R&D), production structure, direct foreign capital, and monetary and fiscal policies) should not be overlooked. On these areas, the regulations and structural reforms are as important as economic growth.

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