The effects of financial liberalisation on the balance of payments: Turkey evidence

After 24 January 1980 Decisions, Turkey moved from import-substitution industrialisation strategy to export-based industrialisation strategy. As the inevitable result of internal economic and political developments and external dynamics, this policy change led to Turkey?s articulation to the international financial world markets. In this respect, Turkey, who internalised the financial liberalisation process between the years 1980-1989, stepped into full financial liberalisation via Dec. No. 32 of 1989 and liberalised all her capital flows completely. Trying to compensate her saving deficits with the sources obtained from international markets, Turkey started to experience the potential drawbacks of her preference. Thus, the results brought about by financial liberalisation played a leading role in the crises which Turkey went through in 1994, 2000 and 2001.As it is pointed out both in the literature and the developments mentioned above, this study, which aims at analysing the interaction between financial liberalisation -a completely up-to-date issue in Turkish context- and the changes in the balance of payments, consists of four parts. In the first part, financial liberalisation is examined both at conceptual and theoretical levels. The second part focuses on the items included in the balance of payments and the direct and indirect effects of financial liberalisation on these items.Part three deals with the analysis of the arrangements related to financial liberalisation in Turkey and its general effects on the balance of payments. Assigning econometric methods, the last part of the study attempts to evaluate the direct and indirect effects of financial liberalisation on the items in the balance of payments.The study is finalised with a conclusion part in which the previous ones are summarised and recommendations related to policy preferences are made.Keywords: 1-Financial Liberalisation, 2-Balance of Payments,3-Direct Impulse Channels, 4-Indirect Impulse Channels,5-Co-Integration.