Thirlwall's balance of payments constrained growth (BPCG) model with capital flows and disaggregated imports sectors for the Turkish economy for 1998-2019 period

In this thesis, we considered an extended version of the BPCG model incorporating the capital inflows, the disaggregated imports and allowing also for some possible structural changes. We estimated the demand for imports separately at a disaggregated level: intermediate, consumption and capital goods for the 1998-2019 period for Turkey. Both the extended BPCG model and the basic Thirlwall Law provided quite close yearly average predictions, 4.33% and 4.29% (using the bounds testing and the first differences methods), and 6.04% and 5.57% (using Johansen cointegration test), respectively, compared to the actual average growth rate of income of Turkey, 4.37% for the 1998-2019 period. However, we pointed out that the short-run variations may be more important from a policy perspective. Even though the real exports increased by an average of 6.01%, its relatively small contribution to the rate of growth of income may have been due to the fact that we took into account the rise in intermediate imports due to an increase in manufactured exports. Our finding that the relative price changes are not important for the growth rate of income in the long run was also consistent with the basic Thirlwall hypothesis. There seems to be two stylized facts. The first one is that in the Turkish economy there seems to be abrupt decreases in capital flows before/during the recessions. The second stylized fact seems to be that the periods when the GDP grew rapidly have been associated with heavy increases in capital inflows, generally after the recessions. Finally, we compared the income elasticity for imports from our study and those found in the literature for Turkey. We found this elasticity to be 1.40 and 1.08 whereas those from the other works were in the range of 1.82-2.60.