Abstract
The Sustainability of Turkey’s Current Accounts Deficit
The sustainability of the current accounts deficit is significant for the steady growth of nations and protecting their macroeconomic equilibrium. This study aims to determine if the current account deficit is sustainable using monthly data sets from 1987 to 2018. The long-term relationship between real exports and real imports was determined using the Fourier cointegration test that also considers structural breaks, and the current accounts deficit was found to be sustainable. The long-term coefficients of the variables were estimated using FMOLS analysis to determine if the current accounts deficit was sustainable in its strong or weak form, and the coefficient of the import variable was found to be 0.69. This result indicates that Turkey earned $0.69 of export income in exchange for $1 of imports, that exportation was dependent on importation in Turkey, and that the current account deficit was sustainable in its weak form, meaning that export incomes met a certain part of the import incomes. Then, a causality test was conducted with the variables at hand, and no causal relationships were found. This means that Turkey’s current accounts deficit is sustainable in its weak form, and this is a significant problem for Turkey’s economy. It is important for Turkey to ensure that current accounts deficit sustainability is in its strong form for the national economy.
Keywords
Macroeconomics, Current Accounts Deficit, Sustainability, Fourier Cointegration
