Dynamics of current account deficit in Turkey (2003-2019)

The deficits in the current account not only show that an economy spends more than production but also reveals that the economy is vulnerable to external shocks due to its external dependence. Therefore, the implementation of policies to eliminate the causes of deficit in the current account is essential to ensure macroeconomic balance and stable growth. Thus, it aimed to determine the factors that make up the deficit in the current account in Turkey in this thesis. Thus, it is aimed to contribute to the design process of the policies to be implemented to ensure the current account balance. Within the scope of the study, the effects of the public budget deficit, savings-investment deficit, exchange rate, national income, foreign debt and imports of production inputs on current account deficits were investigated separately in six different models. For this, quarterly data of variables between 2003 and 2019 were analysed using the Johansen Cointegration and Granger Causality Tests. Econometric results show that public budget deficit and exchange rate have no effect on the current account. On the other hand, it has been determined that there is a causality relationship from the savings-investment deficit, foreign debt and imports of production input to the deficit in the current account. In addition, a bidirectional causality was found between the national income and foreign debt with the deficit in the current account. Empirical findings show that while the private sector invests more than savings, imports production inputs and obtains financing resources from abroad, causing a deficit in the current account. Accordingly, investments are carried out with imported input and financial resources provided from abroad due to the deficit in the current account in Turkey. This also shows that the current process of production and economic growth in Turkey is performed based on deficits in the current accounts. The bidirectional causality relationship between the deficit in the current account and national income has also confirmed this fact. Thus, there is a need for policies to support the development of new sectors in Turkey to substitute the imports of production inputs to close the deficit in the current account and get a more powerful growth strategy. Key words: Current Account Deficit, Saving Gap, Imported Input, National Income