The effects of savings on macroeconomic performance: Theory and case of Turkey

Consumption dynamics and savings are considered important in the analysis of economic fluctuations and methods of monetary policy in the short run. Additionally, they determine the size of capital stock and the results of wages, interest and living standards in the long run. For this reason, developing countries experiencing a saving deficit, attempt to eliminate their saving deficit by means of foreign capital flows and external borrowing. This situation increases the external dependency of countries, making their economies more vulnerable to exchange rate risks and foreign economic shocks. Turkey, among developing countries, has put domestic savings in secondary place like other developing countries due to external financing difficulties and consumption-based growth strategy. This situation has gradually increased the country's foreign financing dependency; so sustainable economic development has become extremely sensitive to developments in the world economy. Indeed, the announcement of FED's tight monetary policies, required Turkish economy to adopt new precautions due to its high dependence on external financing. Before these precautions are taken, the priority macroeconomic indicators to be improved in the economy must be identified as well as the extent to which savings affect these areas and how they are influenced by each other. In this study, the relationship between savings and growth, investment, current account deficit, foreign portfolio investments and inflation rates which are situated in the major macroeconomic performance indicators, will be analyzed with annual data and time series analysis for the period 1975-2016 in Turkey. It is expected that, saving has a significant impact on the core macroeconomic indicators of the Turkish economy.