The relationship between current deficit and economic growth: Sample of Turkey and Brazil (1980-2015)

The concepts of current deficit and economic growth which are related to each other are among the most important macroeconomic indicators that provide with information about a country's economic structure. Especially seen in the recent years; the high growth rates coming along with globalization process cause current account to have deficits by increasing the need for intermediate goods in production and by satisfying these needs via importing these goods. The increased current deficits affect growth process in a negative way by increasing sovereign risk and refer to the outbreak of crises; and also they affect the short and long-term future plans of the domestic and foreign investors. The aim of this study is to investigate the relationship between current deficit and economic growth in terms of Turkey and Brazil. In the first chapter, there are information presented about the concepts of balance of payments, current deficit and economic growth. In the second chapter, the progress of current deficit and economic growth between 1980 and 2015 in Turkish and Brazilian economies were explained. In the third chapter, the econometric analysis of current deficit and economic growth in Turkish and Brazilian economies were presented. In the practice, the relationship among the variables economic growth, current deficit, exchange rate and energy import were analyzed for both economy of Turkey and economy of Brazil using the annual data covering 1980-2015. And the results were compared to the two countries. As a result of the Johansen Co-integration Test applied to these variables, it is concluded that the subject variables are co-integrated. In order to determine the causality relationship between variables, Granger Causality Test was applied and as a result of the test, the variables were found to be related to one another; also, a mutual –two way- relationship between economic growth and current deficit was found both for Turkey and for Brazil. VAR analysis that was made also supported this result. This study contributes to the literature; the current account deficit, economic growth, exchange rates and for Brazil and Turkey as well as the relationships between the variables of energy imports, is the first study to compare countries and analyzed separately.