Sustainability of Turkey's current account deficit: An econometric investigation

In the recent past, many developing countries with high and permanent current account deficit (CAD) experiences crisis. After these crisis high and permanent CAD's emerged one of the determiner of the crisis and testing the sustainability of these deficits become popular in the literature. Turkey affected severely from a twin-deficit crisis in 2001 and the global financial crisis in 2009, which is experienced in a high CAD period. Turkish economy has a high CAD due to two main reasons: inadequate leves of domestic savings for financing investments and the increasing imported composition of the manufacturing sector. In addition to ensuring the financing of the CAD after the global financial crisis, more use of the short-term foreign resources, has led to an increase in vulnerability based on the external balances. The aim of this study is to test of Sustainability of the Turkey's CAD through using Two Stages Engle-Granger, Johansen cointegration, ARDL and Bounds testing approaches which is based on intertemporal models framefork with a dataset covers 1992:1-2015:3 period. Based on empirical evidence, the main result of the study indicates that Turkish CAD is sustainable in a weak form for the study's sample. Empirical results also compatible with current account behaviour of the developing countries and empirical literature.