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A SURVEY ON THE FACTORS AFFECTING CURRENT ACCOUNT BALANCE OF TURKEY: EVIDENCE FROM ARDL-BOUNDS TESTING APPROACH

Abstract

Author(s): Gökhan ÖZDAMAR

It is observed that the ratio of current account deficit-to-gross domestic product is considerably high in Turkish economy, especially in recent years. In this context, investigating the determinants of current account balance becomes important in terms of macroeconomic balance and economic policy decisions. In this study, relationships between the current account balance and selected macroeconomic variables in Turkish economy are researched with the ARDL-Bounds testing approach. Results of the study related to the long-run show that the international terms of trade is a strong explanatory variable of the current account balance of Turkey and this result implies that Harberger-Laursen-Metzler (HLM) hypothesis is valid for Turkey. Findings indicate that also foreign trade balance has strong effect on the current account balance of Turkey while the gross domestic product is found to be statistically significant but the effect level is quite low. Domestic interest rate and the real effective exchange rate variables are found to be statistically insignificant in the long-run. On the other hand, results of the short-run analysis reveal that current account balance of Turkey is mostly affected from the lagged value of itself, from foreign trade balance and also from lagged value of the real effective exchange rate.

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