IS ECONOMIC GROWTH A PROBLEM IN TERMS OF CURRENT ACCOUNT DEFICIT? AN EMPIRICAL APPROACH TO VICIOUS CIRCLE: CASE OF TURKEY

Developing countries with insufficient national savings have to have a current account deficit in order to grow. The decision makers in these countries, which are fragile due to the current account deficit, are on the knife edge and often cannot develop an economic growth model that will not produce a current account deficit. In this study conducted to question if there is a relationship between economic growth and current account deficit forming a vicious cycle in developing countries, the relationship between variables were searched taking the numbers of Turkey’s Gross Domestic Product (GDP) (with fixed prices, USD) between 1974-2018 and the current account deficit (million USD) from IMF. Engle-Granger and Johansen Cointegration Tests were applied to the data to determine long term relationship. As a result of the determination of long-term cointegration of the series, the Granger Causality Test was applied through VECM to test the short-term causality and direction. As a result of analysis; it was determined that the economic growth and the current account deficit were cointegrated in the long term, and in the short term it was determined that economic growth was the cause of the current account deficit.

Keywords

Economic Growth, Current Account Deficit, Cointegration, Johansen Cointegration, Granger Causality