Sustainability of current account deficit in Turkey and relationship with growth

The current account deficit is one of the most important structural problems of Turkey in recent years. The high ratio of current account deficit to GDP is considered a crisis indicator. For this reason, the relationship between current account deficit and growth is frequently discussed in the literature. Therefore, analyzing the sustainability of current account deficits and suggesting solutions policy based on this is very important. In this study, the sustainability of current account deficit in Turkey has been analyzed with monthly data for the period 2000M1-2016M12. The causality relationship between growth and the current account deficit is analyzed econometrically by the quartile data for the period 2000Q1-2016Q4. First, the ADF, PP and KPSS unit root tests were applied to stabilize the series. Variables were found to be stationary when the first difference is taken, not at the level value. That is, the series are at the level of I (1). The causality relationship between the economic growth and the current account was examined with the Granger (1969) causality test. Then, the cointegration relation between the series was examined by the VAR based Johansen (1988) method and a cointegration relation was determined between the variables. As a result of the analysis, the cointegration coefficient was 0.74, indicating that the current deficit can be sustained in low form. The short term analysis coefficient was found to be negative and statistically significant. That is, the error correction term works. KEYWORDS: Current Account Deficit, Sustainability, Growth, Johansen Cointegration