The relationship of current account balance and economic growth: Analysis of Turkey

One of the most frequently discussed issues in developed and developing countries such as Turkey in recent years is the current account deficit problem. It is thought that the crises experienced in the 1980s and 1990s were mainly caused by the current account deficit problem. One of the main goals in macroeconomics is to ensure the same internal and external balance in the country. While changes are observed in both economic growth and current account deficit data in Turkey, the main issue here is whether economic growth affects the current account deficit or whether changes in the current account deficit affect economic growth. The aim of this study is to examine the relationship between current account balance and economic growth in Turkey through time series analysis. For this purpose, current account balance, inflation, general budget balance, gross fixed capital formation, Gross Domestic Product growth rate and exchange rate variables to represent economic growth were used in the study. Methods such as VAR analysis, impulse-response functions, variance decomposition analysis, ARDL analysis, bounds test, and Toda-Yamamoto causality test were used in the study. According to the results of the analysis, it was concluded that there is a long-term relationship between the current account balance and economic growth. According to the results of the Toda-Yamamoto causality analysis conducted to determine the causality relationship between the variables, it was concluded that there is a unidirectional relationship from economic growth to current account balance.