The analysis of the effects of external debts on economic growth in Turkey

External borrowing is a source of financing that especially developing countries which have low economic performance and scantiness of resources apply. Developing countries and developed countries have tried to raise their national economies with external borrowing for years. At this point, foreign resources are needed for economic growth and development. Particularly less developed and developing countries are obliged to borrow for industrialization attempts that require high budget. If external debt is used or financing productive investments, its positive effect on national output, reverses as repayments of external debts lead to unreturned funds flow. Moreover, debts, which are not paid in due time, cause debt crisis by bringing fiscal burden to economy and emerging matters related to this situation make economic balances more vulnerable against external shocks.Most empirical studies indicate a negative correlation between foreign debt and economic growth, especially in those countries whose foreign debts are relatively high. This study, examines the correlation between foreign debt andeconomic growth in Turkish economy. Toward this objective, it uses the economic indicators of Turkey between 1980 and 2006. This paper investigates the relationship between external debt and economic growth in Turkey for the period from 1980 to 2006 by using cointegration and causality analysis.