Influence of the Turkey's post 2000 real effective exchange rate index changes on manufacturing industry

It is known that the manufacturing industry sector is one of the important factors that change the development level of countries in the world economy. When Turkey's industrial structure is taken into consideration, importance of the manufacturing industry is emerged. Since countries trade with each other through foreign exchange, changes in exchange rates affect the manufacturing industry. Turkey's dependent position in terms of input, intermediate good and energy decreases its global competitiveness. Due to the high share of the manufacturing industry in foreign trade, it is more affected by the changes in the real effective exchange rate index. The purpose of this study is to reveal how the changes in the reel effective exchange rate index between 2000-2020 affect the manufacturing industry production in Turkey. For this purpose, unit root analysis with structural break, Ordinary Least Squares Method (OLS) and Vector Autoregression (VAR) analysis were applied. Analyzes were made with monthly data covering the 2000:M1-2020:M12 periods by using the PPI-Based Real Effective Exchange Rate Index and Manufacturing Industry Production Index variables. As a result of the unit root analysis, it was determined that structural breaks occurred. According to the results of the Ordinary Least Squares Method, a negative and strong relationship was determined between the two variables. VAR analysis supports the results.