The problem of current account deficit in Turkey and economy policy practices

In recent years, especially with the effect of rapid globalization and financialization the current account deficit is a major threat to the state of the economies of developing countries. The same thing is valid for the Turkish economy. In recent years, many studies have been done foreseeing policy recommendations and precautions for dealing with the current account deficit. Before the current account deficits sustainability and funding issues it is important to know the dynamics of the current account deficit. In this study, determinants of the current account deficits and policies implemented in this context will be covered. Therefore, it is intended to provide policy recommendations for closing the deficit. In this study, co-integration relationship between the ratios of exports to imports, oil prices, the real effective exchange rate, the real interest rate and BIST 100 variables are analyzed by VECM for the years 2003-2015. The result of the analysis has detected that import dependence of exports for the Turkish economy was the most important reason for the imbalances in the current account. There is also another important results obtained in the study which is for the Turkish economy implementing the structural reforms before long is an effective factor in order to deal with the current account deficit. Keywords: Balance of payment, Current account deficit, Economy policies, VECM analysis, Turkey.