Sustainability of current account deficit in Turkey: 2003-2019 period analysis

The current account balance is extremely important for all countries in terms of ensuring macroeconomic stability. Imbalances in the current account because of fluctuations in import and export movements are an important factor that disrupts macroeconomic stability. The fluctuations in the current account have gained more importance with the increase in international commercial and financial movements together with economic globalization. The fact that the current account deficits experienced in this process has become an important indicator of crisis has made the sustainability of current account deficits an important topic of discussion in the literature. In this context, the sustainability of current account deficits has become more important especially for developing economies such as Turkey. Within the framework of this study on the sustainability of current account deficits in Turkey, the data between 2003 and 2019 were analysed using the Husted (1992) intertemporal budget constraint model. Johansen cointegration and Granger causality tests were applied as econometric methods. As a result of the econometric analyses, it has been seen that the current account deficits in the Turkish economy in the relevant periods are sustainable in a weak form. In addition, a bidirectional causality relationship between imports and exports has been determined. The findings of the study showed that the dependence on imported inputs in the production structure should be reduced in order for the current account deficits in the Turkish economy to become strongly sustainable. If a production structure that creates high added-value is achieved, the relations between import and export can be managed more effectively. Thus, policies aiming to reduce the import-input dependency of the production structure in Turkey are of great importance in order to maintain the current account deficit.