UNVEILING THE IMPACT OF GEOPOLITICAL RISKS ON TURKISH ECONOMY AND FISCAL DYNAMICS

Year 2024, , 221 - 232, 27.06.2024

Süleyman Kasal

https://doi.org/10.14780/muiibd.1411164

Abstract

This research aims to examine the impact of geopolitical risks on Türkiye's trade openness, household consumption, investment, government debt, and budget deficit for the quarters 2006:I–2022:IV. There are no empirical studies in the literature that examine the relationship between geopolitical risks and Turkish fiscal policy. The vector autoregressive (VAR) approach is utilized to examine the relationships among the variables. Geopolitical risks contribute to a very serious increase in inflation in Türkiye. The increase in geopolitical risks negatively affects consumption and investment and increases budget deficits and government debt. Additionally, Türkiye's trade volume has also decreased as a result of rising geopolitical risks, according to the VAR model's results. These findings demonstrate how vulnerable the Turkish economy is to geopolitical risks. Succinctly, Türkiye's public finances and economy are negatively impacted by geopolitical risks according to the analysis's findings. As a matter of fact, taking precautionary fiscal policy measures against geopolitical risks is important in eliminating the fiscal and economic losses that may arise. In this respect, this study has the potential to make a new contribution to the fiscal policy literature and to guide fiscal policy makers.

Keywords

Geopolitical risks, fiscal policy, business cycle, vector autoregression (VAR)

Jeopolitik Risklerin Türkiye Ekonomisine ve Mali Dinamiklere Etkisinin Ortaya Çıkarılması

Abstract

Bu araştırma, jeopolitik risklerin Türkiye'nin ticari açıklığı, hane halkı tüketimi, yatırımı, devlet borcu ve bütçe açığı üzerindeki etkisini 2006:I–2022 çeyrekleri için incelemeyi amaçlamaktadır. Literatürde jeopolitik riskler ile Türk maliye politikası arasındaki ilişkiyi inceleyen ampirik bir çalışma bulunmamaktadır. Değişkenler arasındaki ilişkileri incelemek için vektör otoregresif (VAR) yaklaşımı kullanılmıştır. Jeopolitik riskler Türkiye'de enflasyonun çok ciddi bir oranda yükselmesine katkıda bulunmaktadır. Jeopolitik risklerin artması tüketimi ve yatırımı olumsuz etkileyerek bütçe açıklarını ve devlet borçlarını artırmaktadır. Ayrıca VAR modeli sonuçlarına göre, artan jeopolitik riskler nedeniyle Türkiye'nin ticaret hacmi de azalmaktadır. Bu bulgular Türkiye ekonomisinin jeopolitik risklere karşı ne kadar kırılgan olduğunu ortaya koymaktadır. Kısacası analiz bulgularına göre Türkiye'nin kamu maliyesi ve Türk ekonomisi jeopolitik risklerden olumsuz etkilenmektedir. Bu bulgu, Türkiye'de jeopolitik risklerin politika oluşturma süreçlerine dahil edilmesinin önemini vurgulamaktadır. Nitekim jeopolitik risklere karşı ihtiyati maliye politikası tedbirleri alınması ortaya çıkacak mali zararların giderilmesi bakımından önemlidir. Bu yönüyle bu çalışma maliye politikası literatürüne yeni bir katkı yapma ve maliye politikası yapıcılara yol gösterici olması bakımından bir potansiyeline sahiptir.

Keywords

Jeopolitik riskler, maliye politikası, konjonktürel dalgalanma, vektör otoregresyon (VAR)

References

• Ağırman, E., Özcan, M. and Yılmaz, Ö. (2014). Terörizmin finansal piyasalara etkisi: ampirik bir çalışma. BDDK Bankacılık ve Finansal Piyasalar Dergisi, 8(2): 99–117. https://dergipark.org.tr/tr/pub/bddkdergisi/ issue/57344/812567
• Akitoby, B., Honda, J. and Primus, K. (2020). Tax revenues in fragile and conflict-affected states-Why are they low and how can we raise them? WP/20/143. IMF Working Paper. https://www.imf.org/en/Publications/ WP/Issues/2020/07/24/Tax-Revenues-in-Fragile-and-Conflict-Affected-States-Why-Are-They-Lowand- How-Can-We-Raise-49570
• Balcilar, M., Bonato, M., Demirer, R. and Gupta, R. (2018). Geopolitical risks and stock market dynamics of the BRICS. Economic Systems, 42(2): 295–306. https://doi.org/10.1016/j.ecosys.2017.05.008 Bank for International Settlements (2016). https://www.bis.org/review/r160704c.pdf, (June 30, 2016).
• Bilgin, M. H., Gözgör, G. and Karabulut, G. (2020). How do geopolitical risks affect government investment? an empirical investigation. Defence and Peace Economics, 31(5): 550–564. Routledge. https://doi.org/10.10 80/10242.694.2018.1513620
• Blomberg, S. B., Hess, G. D. and Orphanides, A. (2004). The macroeconomic consequences of terrorism. Journal of Monetary Economics, 51(5): 1007–1032. https://doi.org/10.1016/j.jmoneco.2004.04.001
• Caldara, D., Conlisk, S., Iacoviello, M. and Penn, M. (2023). Do geopolitical risks raise or lower inflation? Working Paper. Federal Reserve Board of Governors. https://www.matteoiacoviello.com/research_files/ GPR_INFLATION_PAPER.pdf, (July 20, 2023).
• Caldara, D. and Iacoviell, M. (2022). Measuring geopolitical risk. American Economic Review, 112(4): 1194– 1225. American Economic Association. https://doi.org/10.1257/aer.20191823
• Chanegriha, M., Stewart, C. and Tsoukis, C. (2017). Identifying the robust economic, geographical and political determinants of FDI: an extreme bounds analysis. Empirical Economics, 52(2): 759–776. https://doi. org/10.1007/s00181.016.1097-1
• Chen, A. H. and Siems, T. F. (2004). The effects of terrorism on global capital markets. European Journal of Political Economy, 20(2): 349–366. https://doi.org/10.1016/j.ejpoleco.2003.12.005
• Cheng, C. H. J. and Chiu, C. W. (Jeremy). (2018). How important are global geopolitical risks to emerging countries? International Economics, 156, 305–325. https://doi.org/10.1016/j.inteco.2018.05.002.
• Çiçek, H. G., Şahin İpek, E. and Dikmen, S. (2014). Terörün kamu finansmanındaki etkisinin vergi cennetleri kapsamında değerlendirilmesi. N. Saygılıoğlu (Ed.), in Prof. Dr. Şükrü Kızılot’a Armağan (p. 404–425). Ankara: Gazi Üniversitesi.
• Drakos, K. and Konstantinou, P. T. (2014). Terrorism, crime and public spending: panel var evidence from Europe. Defence and Peace Economics, 25(4): 349–361. https://doi.org/10.1080/10242.694.2013.804668
• Enders, W. and Sandler, T. (1996). Terrorism and foreign direct investment in Spain and Greece. KYKLOS, 49(3), 331–352. https://doi.org/10.1111/j.1467-6435.1996.tb01400.x
• Gaibulloev, K. and Sandler, T. (2008). “Growth consequences of terrorism in Western Europe”. KYKLOS, 61(3): 411–421. https://doi.org/10.1111/j.1467-6435.2008.00409.x
• Gallant, M. M. (2007). Tax and terrorism: a new partnership? Journal of Financial Crime, 14(4): 453–459. https:// doi.org/10.1108/135.907.90710828163
• Glick, R. and Taylor, A. M. (2010). Collateral damage: trade disruption and the economic impact of war. The Review of Economics and Statistics, 92(1): 102–127. https://www.jstor.org/stable/25651393
• Gupta, R., Gözgör, G., Kaya, H. and Demir, E. (2019). Effects of geopolitical risks on trade flows: Evidence from the gravity model. Eurasian Economic Review, 9(4): 515–530. https://doi.org/10.1007/s40822.018.0118-0
• Gupta, S., Clements, B., Bhattacharya, R. and Chakravarti, S. (2002). Fiscal consequences of armed conflict and terrorism in low-and middle-income countries. IMF Working Paper. WP/02/142. https://doi. org/10.5089/978.158.9063181.071
• Huang, T., Wu, F., Yu, J. and Zhang, B. (2015). International political risk and government bond pricing. Journal of Banking and Finance, 55: 393–405. https://doi.org/10.1016/j.jbankfin.2014.08.003
• Kim, Y. S., Park, K. J. and Kwon, O. B. (2019). Geopolitical risk and trading patterns of foreign and domestic investors: Evidence from Korea. Asia-Pacific Journal of Financial Studies, 48(2): 269–298. https://doi. org/10.1111/ajfs.12253
• Lee J., Strazicich, M. (2013). Minimum LM unit root test with one structural break. Econ Bull 34(3): 2483–2492. http://www.accessecon.com/Pubs/EB/2013/Volume33/EB-13-V33-I4-P234.pdf
• Lütkepohl, H. (2005). New introduction to multiple time series analysis. Springer: Berlin.
• Nguyen, T. T. T., Pham, B. T. and Sala, H. (2022). Being an emerging economy: To what extent do geopolitical risks hamper technology and FDI inflows?. Economic Analysis and Policy, 74: 728–746. https://doi. org/10.1016/j.eap.2022.04.005
• Salisu, A. A., Cuñado, J. and Gupta, R. (2022). Geopolitical risks and historical exchange rate volatility of the BRICS. International Review of Economics and Finance, 77: 179–190. https://doi.org/10.1016/j. iref.2021.09.017
• Schmidt, P. and P. C. B. Phillips (1992). LM tests for a unit root in the presence of deterministic trends. Oxford Bulletin of Economics and Statistics 54(3): 257-287. https://doi.org/10.1111/j.1468-0084.1992.tb00002.x
• Subramaniam, S. (2021). Geopolitical uncertainty and sovereign bond yields of BRICS economies. Studies in Economics and Finance, 39(2): 311–330. Emerald Group Holdings Ltd. http://dx.doi.org/10.1108/SEF- 05-2021-0214
• Yılancı, V. (2009). Yapısal kırılmalar altında Türkiye için işsizlik histerisinin sınanması. Doğuş Üniversitesi Dergisi, 10(2): 324-335. https://dergipark.org.tr/tr/pub/doujournal/issue/66661/1043043
• Yogo, T., U. (2015). Terrorism and fiscal policy volatility in developing countries: Evidence from cross-country and panel data. Etudes et Documents, CERDI. No. 14. https://shs.hal.science/halshs-01161601
• Xu, H. and Moser, W. J. (2022). Terrorism and corporate tax avoidance. Abacus, 58(1): 174–208. https://doi. org/10.1111/abac.12235