Analysis between macroeconomic vulnerability and foreign trade in Turkey

As a combination of the inability to manage unpredictable external shocks and risks affecting the economic development of countries and the inability to mitigate them, the phenomenon of macroeconomic vulnerability, usually encountered in developing economies/emerging markets, also refers to the high degree of instability and fluctuations faced by economies affecting the markets. This situation, which has been observed in developing countries especially since the 1990s, reveals the need for prior detection and measurement of vulnerability. The determination of macroeconomic vulnerability that may occur in the short and long term is important in order to reduce the negative effects on the economy. Although there are various index definitions in order to detect vulnerability in advance, a macroeconomic vulnerability index based on six leading indicators in developing economies is created in the 2004 monetary policy report of the American Central Bank (FED). The index includes the ratio of the current account balance to GDP, the ratio of domestic loans extended by banks to the private sector to GDP, the ratio of foreign debt to exports, the ratio of foreign exchange reserves to GDP, the ratio of public debt to GDP and inflation indicators. In this context, the study aims to examine the relationship between macroeconomic vulnerability and foreign trade for the period 1994-2022 for the Turkish economy, which is among both developing and vulnerability economies. Firstly, the macroeconomic vulnerability index is calculated based on the aforementioned indicators, and the relationship between the macroeconomic vulnerability index and foreign trade is tested by the ARDL Boundary Testing approach and Toda-Yamamoto causality analysis. According to the findings obtained from the study, according to the ARDL border test findings, there is a statistically significant relationship between both export and import variables of the macroeconomic vulnerability index in the long term. The error correction coefficient can also be said that deviations from the equilibrium in the short term will come back to equilibrium after 1.13 years by converging to the long-term equilibrium. According to the causality findings, while unidirectional causality from exports to macroeconomic vulnerability is observed; bidirectional causality is detected between both macroeconomic vulnerability and imports, exports and imports.