Analysis of cyclical dynamics for the components of the Turkish manufacturing industry using Markov switching model: A comparison with advanced European economies

The manufacturing industry has begun to reassessment intensively in designing sustainable growth and development policies in parallel with the discussions on deindustrialization, particularly after the devastating effects of the recent global financial crisis on real sector. Both developing and developed economies aims to strenghten their economic structures and achieve a more stable growth in a sustainable framework by eliminating the ongoing effects of the crisis. The study examines the asymmetric cyclical dynamics of the Turkish manufacturing industry and its components by comparing with advanced European economies by employing manufacturing production indices at monthly level that covers the periods between January 2005 and December 2015. This study documents the presence of state-dependent asymmetric behaviors and heteroskedasticity across the cyclical phases in manufacturing industry and sub-sectors for Turkey and developed European countries by employing hidden Markov models. Revealing these results provides a further understanding on the structure of Turkish manufacturing industry profile for policy makers and investors in order to design more effective policies in the decision-making process. Keywords: Manufacturing Industry, Cyclical Analysis, Markov Switching Models.