The examination of interrelation among the economic growth, current deficit and short term capital flows: A research on the OECD countries

In this study, it has been analysed if there is a relationship among the economic growth, current account deficit and short-term capital flowsbetween the years of 1990-2010 in 20 OECD countries. First, the model, the dependent variable is the current account deficit and short-term capital flows and economic growth are explanatory variables, was estimated with within estimator. As a result of within estimator, there is a positive and significant relationship with both short-term capital flows and economic growth. SURADF, CADF and CIPS panel unit root tests were used for determining the variables in model whether contain a unit root. As a result of unit root tests, it was understood that cross-sectional units, compose the panel, are not stationary to same rank. It has been analysed whether or not there is a long-run relationship among the variables with Westerlund-Durbin-Hausman and Westerlund Error Correction panel cointegration tests. As a result of the panel cointegration tests, it was concluded that there is a cointegration relationship among the current account deficit, short-term capital flows and economic growth. Finally, it was analysed whether there is a causality relationship among the variables with causality tests developed by Emirmahmutoglu-Kose and Dumitrescu-Hurlin. Results of the analysis usually have showed that there are bi-directional causality relationship between economic growth and the current account deficit in 20 OECD country and 13 OECD country. But it was determined uni-directional causality relationship from short term capital flows to economic growth and current account deficit and it was determined uni-directional causality relationship from current account deficit to economic growth.Key Words: Economic Growth, Current Account Deficit, Short-Term Capital Flows, OECD, Dynamic Panel Data Models