The relationship between public expenditures and foreign trade deficit

Foreign trade deficits in Turkey are seen as an important problem for the economy as a whole. It is claimed that various variables have different effects on foreign trade deficits reaching large sizes. In the studies, it is argued that one of the variables that cause foreign trade deficits to reach large sizes is public expenditures. Within the scope of this study, Keynesian Approach and Ricardian Equivalence Hypothesis approaches will form the theoretical basis of the study, regarding whether public expenditures are the cause of foreign trade deficits. In this direction, the aim of the study is to evaluate the relationship between public expenditures and foreign trade in the Turkish economy in terms of capital goods, intermediate goods and consumer goods according to the BEC classification, and try to reveal whether there is any relationship between them. In the study, in which the time series analysis method was used, quarterly data for the period 1994-2021 were used, and the relations between the variables discussed were examined using the hidden cointegration method developed by Hatemi-J and Irandoust (2012) and asymmetric causality tests. The findings revealed that there is a long-term cointegration relationship and an asymmetric causality relationship between the variables.