Geopolitical Risk Index, Inflation and Exchange Rate on Economic Growth: Does the Relationship matter Evidence from Turkey

In this study, we examine the impact of geopolitical risk index, inflation and exchange rate on economic growth in the case of Turkey. The geopolitical risk, inflation, exchange rate and economic growth nexus is not without ambiguity. Based on this proposition, this study investigate whether changes in geopolitical risk index, inflation and exchange rate would have significant impact on economic growth in the case of Turkey or not. We are of the opinion that increase/decrease in geopolitical risk index, inflation and exchange rate might influence changes in economic growth. In order to achieve study objective and provide answers to this study research questions as stated in chapter 1, we employ annual frequency data sourced from World Bank Development (online) over the periods of 1985-2017, using Autoregressive Distributed Lag model for estimates and Toda and Yamamoto (1995) for Granger non-causality analysis. In addition, we employ gross fixed capital formation to proxy for domestic investment for ceteris paribus purpose and control for omitted variable bias. Conclusively, based on the empirical results that an increase and/or decrease in geopolitical risk index and inflation have no impacts on economic growth in the case of Turkey. It appears economic growth/development of Turkey is immune to geopolitical risk and fluctuation in price level. Consequently, policymakers should pay more attention to pressing growth determinants that such as exchange rate and domestic investment for a rapid and sustainable economic growth both in the short-run and long run respectively.