External borrowing of the non-financial corporate sector within the framework of Turkey?s resource requirements

In this study, presence of a ?negative balance sheet effect? and the determinants of liability dollarization for the non-financial corporate sector in Turkey were analyzed within the framework of ?balance sheet approach? to financial crisis by using CBRT Sectoral Balance Sheet Data for the 1998-2009 period; particularly the effect of a real depreciation in the Turkish Lira on the investments of the mentioned sector. Various balance sheet fragilities of the mentioned sector in the face of an adverse shift in the global liquidity conditions and risk perceptions were also discussed along with the extent of utilization of the foreign borrowing of the same sector in economic activities which enhance the productive capacity and external debt solvency, within the external financing requirements for economic growth.The major findings of this study can be summarized as follows: Firstly, Turkey is continously in need of foreign savings as domestic savings are not adequate for financing economic growth. Secondly, a ?negative balance sheet effect? is present for the non-financial corporate sector in Turkey which does not match its foreign exchange liabilities with its foreign exchange revenues and hence vulnerable to exchange rate risk; a real depreciation of the Turkish Lira implies lower investment levels for the sectors which have higher liability dollarization. Thirdly, while Turkey?s use of foreign savings relaxes the savings constraint on the one hand, it exacerbates some fragilities which pose pitfalls to sustainable growth on the other hand.