The Relationship of Growth, Current Deficit and Inflation: A Review on Turkey
Chapter from the book: Eroğlu Sevinç, D. & Yüce Akıncı, G. (eds.) 2023. Studies on Economic and Financial Policies.

Serhat Alpağut
Ağrı İbrahim Çeçen University

Synopsis

This research examines the relationship between growth, current account deficit and inflation with the annual data of 1974-2021. In the research, impulse-response and variance decomposition analysis based on VAR (Vector Autoregressive) model was applied. The findings show that economic growth reacts in a short-term (1-2 years) negative and decreasing way in the event of a shock in the current account deficit. In addition, the current account deficit reacts negatively to the economic growth shock. The next important determinant after the forecast error variance in the current account deficit shock is economic growth. Although the current account deficit affects the growth negatively in Turkey, it has been concluded that economic growth brings the current account deficit together. The effects of inflation are statistically insignificant. The results are in line with theory and literature. In this case, growth-oriented foreign trade policies should be implemented meticulously. Considering the fact that Turkey grows with the support of imports, it should be taken into account that every growth has a current account deficit cost.

How to cite this book

Alpağut, S. (2023). The Relationship of Growth, Current Deficit and Inflation: A Review on Turkey. In: Eroğlu Sevinç, D. & Yüce Akıncı, G. (eds.), Studies on Economic and Financial Policies. Özgür Publications. DOI: https://doi.org/10.58830/ozgur.pub68.c91

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Published

March 24, 2023

DOI