Financial contagion and the real economy: The case of Turkey

While the financial crises from the past to the present have sometimes affected the economy of a single country, sometimes they have deeply affected the economy of more than one country. With the development of trade between countries, the liberalization of financial markets and the development of technology, the crisis that emerged at one end of the world has become possible to affect different markets in different parts of the world in a short time. There is a growing debate about the role of financial contagion in the transmission of financial crises. However, no consensus has yet been reached on the definition and channels of financial contagion. In times of financial crisis, market volatility and investors' risk aversion increase significantly. And financial contagion reduces the benefits investors get from diversification in these turbulent times. Therefore, understanding contagion is very important for both international and domestic investors. In this study, in 1987, 1998 and 2008 their impact on the real economy and the global financial crisis in Turkey it was examined in the context of financial contagion. The variables used in the analysis are bank loans, interest rates, portfolio investments, exchange rate, real GDP, household consumption expenditures, gross capital formation, external deficits, inflation and unemployment. Graphs of the steady series were used as methods in the analysis. During the 1987 Crisis, there was a dramatic increase in interest rates and exchange rates, and a sharp decline in bank loans. The 1998 Crisis saw a sharp decline in portfolio investments, a negligible increase in interest rates, and a moderate fall in exchange rates. When the 2008 global crisis is analyzed, there is a sharp decline in portfolio investments and a significant jump in exchange rates; Despite the significant fall in interest rates, the decline in bank loans remained moderate. While there was a radical decrease in real GDP, household consumption expenditures and gross capital formation during the crisis years of 1987, 1998 and 2008, a significant increase in foreign trade deficits was confirmed. These results indicate that studied the global financial crisis caused a dramatic deterioration in the level of real economic activity in Turkey.