An analysis on the main determinants of service export: The case of Turkey

The services sector is the most important sector in both developed and developing economies, due to its increasing share of national income and employment as well as its international trade potential. In developing economies like Turkey, it is important to analyze the trade dynamics of the services sector for developing appropriate policies, in order to increase exchange revenues generated from service export. This study investigates the relationship between service export and its main determinants for Turkey. Used data are quarterly and include the term from 1998:1 to 2017:4. Emprical methods used in the study are unit root tests, co-integration analyses, Granger causality test, impulse-response analyses and variance decomposition . Co-integration relationship between the service export, foreign direct investment, services GDP, terms of trade, goods export, real effective exchange rate and education expenditures (human capital) variables are analyzed by vector error correction model (VECM). According to the obtained empirical findings, the variable that has the greatest effect on service export, in the long run in Turkish economy is services GDP.