THE IMPACT OF CAPITAL FLOWS ON CURRENT ACCOUNT DEFICIT FOR TURKEY

Year 2019, Volume: 6 Issue: 1, 21 - 34, 31.01.2019

Nebile Korucu Gümüşoğlu Sinan Alçın

https://doi.org/10.15637/jlecon.6.003

Abstract

The impact of capital flows on macroeconomic variables is widely studied in applied literature. In this context, this paper aims to analyze the impact of short-term capital flows and foreign direct investment on current account deficit for Turkey by using quarterly data for the time period 1998-2015. We find out a positive and significant relationship between capital flows and current account deficit and negative insignificant relationship between capital flows and foreign direct investment. We use vector autoregression (VAR) model and impulse responses to analyze dynamics between variables.

Keywords

Capital flows, Foreign direct investment, Current account deficit, Turkey

References

• Adedeji,O. and Handa, J. (2008), The Size and Sustainability of the Nigerian Current Account Deficits, The Journal of Developing Areas, 41, 1-25.
• Akbas, Y.E.; Lebe, F. and Uluyol, O. (2014), Analyzing The Relationship Among The GDP – Current Account Deficit and Short Term Capital Flows: The Case of Emerging Markets, Yönetim ve Ekonomi, 21(2): 293-303.
• Akgul, I. and Ozdemir, S. (2014), Modelling And Forecasting Of Turkey Current Account Imbalance with Threshold Autoregressive Models, Journal of Business, Economics & Finance, 3(2): 207-232.
• Ansari, M. I. (2004), Sustainability of the US Current Account Deficit: an Econometric Analysis of the Impact of Capital Inflow on Domestic Economy, Journal of Applied Economics, 7(2), 249-269.
• Apergis, N., Katrakilidis, K. P. and Tabakis, N. M. (2000), Current Account Deficit Sustainability: the Case of Greece, Applied Economics Letters, 7, 599-603.
• Bakardzhieva, D.; Naceur, S.B. and Kamar, B. (2010), The Impact of Capital and Foreign Exchange Flows on the Competitiveness of Developing Countries, IMF Working Paper, 10/154: 3-26.
• Bannaga, A. A. (2004), Adjustment Policies and the Current Account Balance: Empirical Evidence from Sudan, University of Manchester, Development Economics and Public Policy Working Papers , No. 8.
• Başçı, E. And Kara, H. (2011), Financial Stability and Monetary Policy, CBRT Working Paper, no: 11/08.
• Berument, H. and Dinçer, N.N. (2004), Do Capital Flows Improve Macroeconomic Performance in Emerging Markets?, Emerging Markets Finance ande Trade, 40(4): 20-32.
• Cecen, A. and Xiao, L. (2014), Capital Flows and Current Account Dynamics in Turkey: A Nonlinear Time Series Analysis, Economic Modelling, 39: 240-246.
• Cengiz, V. and Karacan, R. (2015), Gelişmekte Olan Ülkelere Yönelik Sermaye Hareketleri Ve Ekonomik Sonuçları, International Journal of Economic and Administrative Studies, 8(15): 327-344.
• Chen, S. (2011), Current Account Deficits and Sustainability: Evidence from the OECD Countries, Economic Modelling, 28: 1455–1464.
• Chen, S. (2014), Smooth Transition, Non-linearity and Current Account Sustainability: Evidence from the European Countries, Economic Modelling, 38: 541-554.
• Cinar, K. and Kose, T. (2015), Economic Crises in Turkey and Pathways to the Future, Journal of Balkan and Near Eastern Studies, 17(2): 159-180.
• Demir, M. and Sever, E. (2009), Effects And Causes Of Short-Time Capital Movements And Role Of Public In Capital Movements: Turkey Case, Electronic Journal of Social Sciences, 8(29): 214-239.
• Direkci, T.B. and Kaygusuz, S. (2013), Short Term Capital Movements, The Interactıon Between Macroeconomic Variables: The Case Of Turkey, Journal of Academic Researches and Studies, 5(9): 28-42.
• Dinçer, N.N. and Yaşar, P. (2015), Identification of Current Account Deficit: The Case of Turkey, The International Trade Journal, 29(1): 63-87.
• Edwards, S. (2005), Is the U.S. Current Account Deficit Sustainable? If not, how Costly is Adjustment Likely to be?, Brookings Papers on Economic Activity, 211-271.
• Fry, M. J., Claessens, S., Burridge, P. And Blanchet, M. C. (1995), Foreign direct investment, other capital flows and current account deficit, The World Bank, International Economics Department, Policy Research Working Paper 1527.
• Gruber, J. W. and Kamin, S. B. (2007), Explaining the global pattern of current account imbalances, Journal of International Money and Finance, 26, 500-522.
• Hamilton, J.D. (1994), Time Series Analysis, Princeton University Press, UK.
• Horne, J. (2001), The current account debate in Australia: changing policy perspectives, Macquarie University, Department of Economics Research Papers, No. 0111.
• Howard, D. H. (1989), Implication of the U.S. Current Account Deficit, The Journal of Economic Perspectives, 3(4), 153-165.
• Hudson, S. and Stennett, R. (2003), Current Account Sustainability in Jamaica, Bank of Jamaica, Working Paper, No: 02111.
• Kandil, M. and Trabelsi, M. (2015), On Capital Flows and Macroeconomic Performance: Evidence Before and after the Financial Crisis in Turkey, Borsa Istanbul Review, 15(4): 249-258.
• Kano, T. (2008), A Structural VAR Approach to the Intertemporal Model of the Current account, Journal of International Money and Finance, 27(5), 757-779.
• Kara, A.H. (2013), Monetary Policy after the Global Crisis, Atl Econ J, 41:51–74.
• Kıran, B. (2007), Türkiye’de Reel Döviz Kuru ile Kısa Ve Uzun Vadeli Sermaye Hareketleri İlişkisi (in turkish), Marmara Üniversitesi İ.İ.B.F. Dergisi, 22(1): 269-283.
• Lee, J. and Chinn, M. D. (2006), Current Account and Real Exchange Rate Dynamics in the G7 Countries, Journal of International Money and Finance, 25, 257-274.
• Mann, C. L. (2002), Perspectives on the U.S. Current Account Deficit and Sustainability, Journal of Economic Perspectives, 16(3), 131-152.
• Matsubayashi, Y. (2005), Are US Current Account Deficits Unsustainable? Testing for the Private and Government Intertemporal Budget Constraints, Japan and the World Economy, 17, 223-237.
• Murat, S. ; Hobikoğlu, E.H. and Dalyancı, L. (2014), Structure and Sustainability of Current Account Deficit in Turkish Economy, Procedia - Social and Behavioral Sciences, 150: 977 – 984.
• Nason, J. M. and Rogers, J. H. (2002), Investment and the Current Account in the Short Run and the Long Run”, Journal of Money, Credit and Banking, 34(4), 967-86.
• Sahoo, M., Babu, M. S. And Dash, U. (), Effects of FDI Flows on Current Account Balances: Do Globalisation and Institutional Quality Matter?”, Forum for Research in Empirical International Trade, Working Paper,
• http://www.freit.org/WorkingPapers/Papers/Other/FREIT1000.pdf, 01/09/2018.
• Siddiqui, D. A., Ahmad, M. H. And Asim, M. (2013), The Casual Relationship Between Foreign Direct Investment and Current Account: An Empirical Investigation for Pakistan Economy, Theoretical and Applied Economics, XX, 8, 585, 93-106.
• Tuffle, D. (1996), Why is the US Current Account Deficit so Large?, Southern Economic Journal, 63(2), 515-525.
• Wu, J. L., Chen, S. L. and Lee, H.Y. (2001), Are Current Account Deficits Sustainable? Evidence from Panel Cointegration, Economics Letters, 72, 219-224.
• Yaman, K. (2011), Consideration of Current Account Deficit’s Problematic from the Perspective of Turkish Economy, http://www.ekonomik yaklasım.org/eykongre2011.
• Yurdakul, F. and Cevher, E. (2015), Determinants of Current Account Deficit in Turkey: The Conditional and Partial Granger Casuality Approach, Procedia Economics and Finance, 26, 92-100.