The effect of external borrowing on economic growth: The example of Türkiye

Nowadays, where economic relations around the world are becoming increasingly complex, understanding the interaction of factors such as foreign debt and economic growth is one of the priority issues of economists and policy makers. This thesis will try to explain and understand this complex relationship by examining the effects of foreign borrowing on economic growth. This study examined in depth the dynamic relationships between external debts and economic growth using Turkey's 2003 1st period and 2023 2nd period data set. The extended Dickey-Fuller (ADF) unit root test was used to determine individual time series properties of the series. In addition, while determining the direction of the relationships with the Granger causality test, "variance decomposition" and "action-response" functions focus on understanding the dynamic relationships between series. Johansen cointegration test was used to evaluate the dynamic relationships between the series in more detail. The findings reveal that there is a relationship between external debts and economic growth. The causal relationship observed between external debts and economic growth is directional from external debts to economic growth; However, a causal relationship from economic growth to external debts could not be determined. As the study emphasizes, the negative impact of external debts on economic growth is remarkable. This situation offers the perspective that an increase in external debt may reduce economic growth and drag countries into a debt spiral. In addition, the causality relationship from external debt to growth revealed by the Granger causality test application shows that these findings are strengthened. These results offer a new perspective on understanding the effects of external borrowing on inflation in terms of Turkey's economic dynamics.