The relationship between public expenditure and foreign debt in Turkey: An econometric analysis

The main aspect of this study is to analyse the relationship between public expenditures and foreign debt in Turkey considering the period after 2002 during political stability. In this respect, as first theoretical framework of this relationship between two variables is generated. Thereafter literature review on this aspect is followed by an econometric analysis of the relationship. The study is composed of two sections. First section introduced theoretical framework. Second section put forward the econometric analysis of public expenditure – foreign debt relationship by some estimation methods and tests. Respectly historical developments of public expenditure and foreign debt in Turkey are suggested. Econometric model followed the historical framework through estimation methods. Granger Casuality Analysis and Johansen Cointegration Analysis were used to test the relationship between variables The findings through econometric modelling suggested positive relationship between public expenditure and foreign debt during the period after the year 2002. The results are consistent with theoretical framework and literatüre. Accordingly, increase in public expenditure during the period of political stability after 2002 could bring about increase in foreign debt. KEYWORDS: Public Expenditures, Foreign Debt, Turkey, Granger Casuality Analysis, Johansen Cointegration Analysis.