The Implications of Geopolitical Risks on Public Finance: A Fourier Toda-Yamamoto Causality Analysis on Türkiye

Öz

This study aims to investigate the relationship between geopolitical risk and public finance indicators in Türkiye. The study is based on monthly data between 2006:1 and July 2024:7. Following the Fourier ADF unit root test to determine the stationarity levels of the variables, the causal relationships between the variables are analyzed using the Fourier Toda-Yamamoto causality test. The findings indicate that there is a bidirectional causality relationship between geopolitical risk and domestic borrowing variables, while there is a unidirectional causality relations from geopolitical risk to budget balance, public expenditures, tax revenues, external debt, and interest payments on domestic debt variables. These results clearly show that geopolitical risks can be determinative on the national fiscal structure and have dynamics that threaten fiscal stability. Considering the effects of geopolitical risks on public finances in Türkiye, it can be stated that policy makers should ensure the integration of geopolitical risk analysis and public financial management processes in order to provide flexibility to public finances.

Anahtar Kelimeler

• Geopolitical risk
• Public finances
• Fourier Causality test
• Türkiye

Jeopolitik Risklerin Kamu Maliyesindeki Yansımaları: Türkiye Üzerine Fourier Toda-Yamamoto Nedensellik Analizi

Öz

Bu çalışmanın amacı, Türkiye'de jeopolitik risk ile kamu maliyesi göstergeleri arasındaki ilişkiyi araştırmaktır. Araştırma, 2006:1 ile 2024:7 dönemine ilişkin aylık verileri kapsamaktadır. Çalışmada Fourier ADF birim kök testiyle değişkenlerin durağanlık seviyeleri belirlendikten sonra, Fourier Toda-Yamamoto nedensellik testi kullanılarak değişkenler arasındaki nedensellik ilişkileri incelenmiştir. Elde edilen bulgular, jeopolitik risk ve iç borçlanma değişkenleri arasında çift yönlü bir nedensellik ilişkisi olduğunu ortaya koyarken aynı zamanda jeopolitik riskten bütçe dengesi, kamu harcamaları, vergi gelirleri, dış borçlanma ve iç borç faiz ödemeleri değişkenlerine doğru tek yönlü nedensellik ilişkilerinin olduğunu göstermektedir. Bu sonuçlar, jeopolitik risklerin ulusal mali yapı üzerinde belirleyici olduğunu ve mali sürdürülebilirliği tehdit eden dinamikler içerdiğini açıkça göstermektedir. Türkiye’de jeopolitik risklerin kamu maliyesi üzerindeki etkileri dikkate alındığında, kamu maliyesine esneklik kazandırmak için politika yapıcılarının jeopolitik risk analizleri ve kamu mali yönetim süreçlerinin entegrasyonunu sağlamalarının bir gereklilik olduğu belirtilebilir.

Anahtar Kelimeler

• Jeopolitik risk
• Kamu maliyesi
• Fourier nedensellik testi
• Türkiye

Kaynakça

1. Afonso, A., Alves, J., & Monteiro, S. (2024a). The pressure is on: How geopolitical tensions impact institutional fiscal and external stability responses. REM Working Paper, No. 318.
2. Afonso, A., Alves, J., & Monteiro, S. (2024b). Echoes of instability: How geopolitical risks shape government debt holdings. CESifo Working Paper Series, No. 11235.
3. Akadiri, S. S., Eluwole, K. K., Akadiri, A. C., & Avci, T. (2020). Does causality between geopolitical risk, tourism and economic growth matter? Evidence from Turkey. Journal of Hospitality and Tourism Management, 43, 273-277.
4. Alsagr, N., & Hemmen, S. V. (2020). Oil rent, geopolitical risk and banking sector performance. International Journal of Energy Economics and Policy, 10(5), 305-314.
5. Altıner, A., & Bozkurt, E. (2023). Reflections of geopolitical risk on foreign direct investments: The case of Türkiye. Journal of the Human and Social Science Researches, 12(3), 1292-1309. https://doi.org/10.15869/itobiad.1271884
6. Antonakakis, N., Gupta, R., Kollias, C., & Papadamou, S. (2017). Geopolitical risks and the oil-stock nexus over 1899-2016. Finance Research Letters, 23, 165-173. https://doi.org/10.1016/j.frl.2017.07.017
7. Aslam, F., & Kang, H. G. (2015). How different terrorist attacks affect stock markets. Defense and Peace Economics, 26(6), 634-648. https://doi.org/10.1080/10242694.2013.832555
8. Atsan, E., & Meriç, M. (2013). Gelişmiş ülkelerde ve Avrupa Birliği’nde borç krizinin etkileri ve çözüm yolları. Uşak Üniversitesi Sosyal Bilimler Dergisi, 6(3), 148-166.

9. Balcilar, M., Gupta, R., & Miller, S. M. (2015). Regime switching model of US crude oil and stock market prices: 1859 to 2013. Energy Economics, 49, 317-327. https://doi.org/10.1016/j.eneco.2015.01.026
10. Baldwin, R., & Martin, P. (1999). Two waves of globalization: Superficial similarities, fundamental differences. NBER Working Paper, No. 6904.
11. Barro, R. J. (2006). Rare disasters and asset markets in the twentieth century. The Quarterly Journal of Economics, 121(3), 823-866. https://doi.org/10.1162/qjec.121.3.823
12. Becker, R., Enders, W., & Lee, J. (2006). A stationarity test in the presence of an unknown number of smooth breaks. Journal of Time Series Analysis, 27(5), 381-409. https://doi.org/10.1111/j.1467-9892.2006.00478.x
13. Bhattarai, S., Chatterjee, A., & Park, W. Y. (2020). Global spillover effects of US uncertainty. Journal of Monetary Economics, 114, 71-89. https://doi.org/10.1016/j.jmoneco.2019.05.008
14. Blomberg, S. B., Hess, G. D., & 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
15. Bloom, N. (2014). Fluctuations in uncertainty. Journal of Economic Perspectives, 28(2), 153-175. https://doi.org/10.1257/jep.28.2.153
16. Bordo, M. D., Duca, J. V., & Koch, C. (2016). Economic policy uncertainty and the credit channel: Aggregate and bank level US evidence over several decades. Journal of Financial Stability, 26, 90-106. https://doi.org/10.1016/j.jfs.2016.07.002
17. Bouoiyour, J., Selmi, R., Hammoudeh, S., & Wohar, M. E. (2019). What are the categories of geopolitical risks that could drive oil prices higher? Acts or threats? Energy Economics, 84, 104523. https://doi.org/10.1016/j.eneco.2019.104523
18. Caldara, D., & Iacoviello, M. (2018). Measuring geopolitical risk. Board of Governors of the Federal Reserve Board. https://www2.bc.edu/matteo-iacoviello/gpr_files/GPR_PAPER.pdf
19. Caldara, D., & Iacoviello, M. (2022). Measuring geopolitical risk. The American Economic Review, 112(4), 1194-1225.
20. Caldara, D., Conlisk, S., Iacoviello, M., & Penn, M. (2024). Do geopolitical risks raise or lower inflation?. Federal Reserve Board of Governors. https://www.matteoiacoviello.com/research_files/GPR_INFLATION_PAPER.pdf
21. Carney, M. (2016). Uncertainty, the economy and policy. Speech, Bank of England, London.
22. Chanegriha, M., Stewart, C., & 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
23. Clance, M. W., Gupta, R., & Wohar, M. E. (2019). Geopolitical risks and recessions in a panel of advanced economies: Evidence from over a century of data. Applied Economics Letters, 26(16), 1317-1321. https://doi.org/10.1080/13504851.2018.1558332
24. Demir, E., Gozgor, G., & Paramati, S. R. (2019). Do geopolitical risks matter for inbound tourism? Eurasian Business Review, 9, 183-191. https://doi.org/10.1007/s40821-019-00118-9
25. Demir, E., & Danışman, G. O. (2021). The impact of economic uncertainty and geopolitical risks on bank credit. The North American Journal of Economics and Finance, 57, 101444. https://doi.org/10.1016/j.najef.2021.101444
26. Demirci, O., & Ayyıldız, F. V. (2023). Jeopolitik risklerin ve savunma harcamalarının iktisadi büyümeyle ilişkisi: MIST ülkeleri örneği. Fiscaoeconomia, 7(3), 1929-1947. https://doi.org/10.25295/fsecon.1277050
27. Deng, M. M., Leippold, A., Wagner, F., & Wang, Q. (2022). Stock prices and the Russia-Ukraine war: Sanctions, energy and ESG. Swiss Finance Institute Research Paper.
28. Dieckelmann, D., Kaufmann, C., Larkou, C., McQuade, P., Negri, C., Pancaro, C., & Rößler, D. (2024). Turbulent times: Geopolitical risk and its impact on euro area financial stability. ECB Financial Stability Review.
29. Drakos, K., & Konstantinou, T. P. (2014). Terrorism, crime and public spending: Panel VAR evidence from Europe. Defence and Peace Economics, 4, 349-361. https://doi.org/10.1080/10242694.2013.804668
30. DW. (2022). Germany commits €100 billion to defence spending. https://www.dw.com/en/germany-commits-100-billion-to-defense-spending/a-60933724
31. DW. (2023). Poland to ramp up defence budget to 4% of GDP. https://www.dw.com/en/poland-to-ramp-up-defence-budget-to-4-of-gdp/a-64555544
32. Economic Policy Uncertainty. (2024). Geopolitical risk index. https://www.policyuncertainty.com/gpr.html
33. Elish, E., Ahmed, H. E., & AboElsoud, M. E. (2023). Military spending crowding out health and education spending: Which views are valid in Egypt? Humanities and Social Sciences Communications, 10(1), 435. https://doi.org/10.1057/s41599-023-01916-3
34. Enders, W., & Lee, J. (2012). The flexible Fourier form and Dickey-Fuller type unit root tests. Economics Letters, 117(1), 196-199. https://doi.org/10.1016/j.econlet.2012.04.081
35. Enders, W., & Sandler, T. (1996). Terrorism and foreign direct investment in Spain and Greece. KYKLOS, 49(3), 331-352.
36. Fang, X., Hardy, B., & Lewis, K. K. (2023). Who holds sovereign debt and why it matters. NBER Working Paper, No. 30087.
37. Gkillas, K., Gupta, R., & Pierdzioch, C. (2020). Forecasting realized gold volatility: Is there a role of geopolitical risks? Finance Research Letters, 35, 101280. https://doi.org/10.1016/j.frl.2019.08.028
38. Glick, R., & Taylor, A. M. (2005). Collateral damage: Trade disruption and the economic impact of war. NBER Working Paper Series, No. 11565.
39. Góes, C., & Bekkers, E. (2022). The impact of geopolitical conflicts on trade, growth, and innovation. World Trade Organization Staff Working Paper, No. ERSD-2022-09.
40. Gómez, V., & Maravall, A. (1998). Seasonal adjustment and signal extraction in economic time series. Bank of Spain Working Paper, No. 9809.
41. Gupta, R., Majumdar, A., Pierdzioch, C., & Wohar, M. E. (2017). Do terror attacks predict gold returns? Evidence from a quantile-predictive-regression approach. The Quarterly Review of Economics and Finance, 65, 276-284. https://doi.org/10.1016/j.qref.2017.01.005
42. Gupta, S., Clements, B., Bhattacharya, R., & Chakravarti, S. (2004). Fiscal consequences of armed conflicts and terrorism in low-and middle-income countries. European Journal of Political Economy, 20(2), 403-421. https://doi.org/10.1016/j.ejpoleco.2003.12.001
43. Haque, T., Pham, T. P., & Yang, J. (2023). Geopolitical risk, financial constraints, and tax avoidance. Journal of International Financial Markets, Institutions and Money, 88, 101858. https://doi.org/10.1016/j.intfin.2023.101858
44. Hoque, M. E., & Zaidi, M. A. S. (2020). Global and country-specific geopolitical risk uncertainty and stock return of fragile emerging economies. Borsa Istanbul Review, 20(3), 197-213. https://doi.org/10.1016/j.bir.2020.05.001
45. Jha, S., Bhushan, S., & Nirola, N. (2024). Is geopolitical risk always detrimental to economic growth? Economic Change and Restructuring, 57(25). https://doi.org/10.1007/s10644-024-09585-1
46. Karolyi, G. A., & Martell, R. (2010). Terrorism and the stock market. International Review of Applied Financial Issues and Economics, 2(2), 285-314.
47. Kasal, S. (2024). Unveiling the impact of geopolitical risks on Turkish economy and fiscal dynamics. Marmara Üniversitesi İktisadi ve İdari Bilimler Dergisi, 46(1), 221-232. https://doi.org/10.14780/muiibd.1411164
48. Kaya, A. (2024). How are geopolitical risks affecting the world economy? https://www.economicsobservatory.com/how-are-geopolitical-risks-affecting-the-world-economy
49. Lee, C. C., & Wang, C. W. (2021). Firms’ cash reserve, financial constraint, and geopolitical risk. Pacific-Basin Finance Journal, 65, 101480. https://doi.org/10.1016/j.pacfin.2020.101480
50. Leydesdorff, L., & Bensman, S. (2006). Classification and power laws: The logarithmic transformation. Journal of the American Society for Information Science and Technology, 57(11), 1470-1486. https://doi.org/10.1002/asi.20467
51. Lu, Z., Gozgor, G., Huang, M., & Chi Keung Lau, M. (2020). The impact of geopolitical risks on financial development: Evidence from emerging markets. Journal of Competitiveness, 12(1), 93-107. https://doi.org/10.7441/joc.2020.01.06
52. Ma, F., Lu, F., & Tao, Y. (2022). Geopolitical risk and excess stock returns predictability: New evidence from a century of data. Finance Research Letters, 50, 103211. https://doi.org/10.1016/j.frl.2022.103211
53. Maravall, A. (2006). An application of the TRAMO-SEATS automatic procedure: Direct versus indirect adjustment. Computational Statistics & Data Analysis, 50(9), 2167-2190. https://doi.org/10.1016/j.csda.2005.07.006
54. Nazlıoğlu, S., Görmüş, N. A., & Soytaş, U. (2016). Oil prices and real estate investment trusts (REITs): Gradual-shift causality and volatility transmission analysis. Energy Economics, 60, 168-175. https://doi.org/10.1016/j.eneco.2016.09.009
55. Nguyen, T. T. T., Pham, B. T., & 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
56. Nguyen, T. T. T., Pham, B. T., & Sala, H. (2023). World uncertainty and national fiscal balances. Journal of Applied Economics, 26(1), 2242110. https://doi.org/10.1080/15140326.2023.2242110
57. Nguyen, T. C., & Thuy, T. H. (2023). Geopolitical risk and the cost of bank loans. Finance Research Letters, 54, 103812. https://doi.org/10.1016/j.frl.2023.103812
58. Noguera-Santaella, J. (2016). Geopolitics and the oil price. Economic Modelling, 52, 301-309. https://doi.org/10.1016/j.econmod.2015.08.018
59. Phan, D. H. B., Tran, V. T., & Iyke, B. N. (2022). Geopolitical risk and bank stability. Finance Research Letters, 46(B), 102453. https://doi.org/10.1016/j.frl.2021.102453
60. Pohjanpalo, K. (2022). Finland makes 70% defense spending increase in shadow of war. Bloomberg. https://www.bloomberg.com/news/articles/2022-04-05/finland-adds-2-2-billion-defense-spending-in-shadow-of-war#xj4y7vzkg
61. Qian, L., Zeng, Q., & Li, T. (2022). Geopolitical risk and oil price volatility: Evidence from Markov-switching model. International Review of Economics & Finance, 81, 29-38. https://doi.org/10.1016/j.iref.2022.05.002
62. Oikonomou, T., & Bağcı, G. B. (2009). A note on the definition of deformed exponential and logarithm functions. Journal of Mathematical Physics, 50(10). https://doi.org/10.1063/1.3227657
63. Saâdaoui, F., Jabeur, S. B., & Goodell, J. W. (2022). Causality of geopolitical risk on food prices: Considering the Russo-Ukrainian conflict. Finance Research Letters, 49, 103103. https://doi.org/10.1016/j.frl.2022.103103
64. Saha, S., Su, J. J., & Campbell, N. (2017). Does political and economic freedom matter for inbound tourism? A cross-national panel data estimation. Journal of Travel Research, 56(2), 221-234. https://doi.org/10.1177/0047287515627028
65. Shrestha, K., Philip, S. S. S., & Khaw, K. L. (2024). Impact of geopolitical risk on target debt ratio. Finance Research Letters, 60, 104946. https://doi.org/10.1016/j.frl.2023.104964
66. Smales, L. A. (2021). Geopolitical risk and volatility spillovers in oil and stock markets. The Quarterly Review of Economics and Finance, 80, 358-366. https://doi.org/10.1016/j.qref.2021.03.008
67. Sun, T. T., & Su, C. W. (2024). How is geopolitical risk associated with food prices? International Journal of Emerging Markets, ahead-of-print. https://doi.org/10.1108/IJOEM-01-2023-0004
68. Sunak, R. (2022). Speech during financial statement, Volume 711: Debated on March 23, 2022. Parliament of the United Kingdom.
69. Sweidan, O. D. (2021). The geopolitical risk effect on the US renewable energy deployment. Journal of Cleaner Production, 293, 126189. https://doi.org/10.1016/j.jclepro.2021.126189
70. Sweidan, O. D. (2023). Geopolitical risk and military expenditures: Evidence from the US economy. Russian Journal of Economics, 9(2), 201-218. https://doi.org/10.32609/j.ruje.9.97733
71. TCMB. (2024). EVDS. https://evds2.tcmb.gov.tr/index.php?/evds/serieMarket/#collapse_20
72. Tran, M. P. B., & Vo, D. H. (2024). Can local and global geopolitical risk predict governments' military spending behaviour? International evidence. Scottish Journal of Political Economy, 71(4), 515-648. https://doi.org/10.1111/sjpe.12382
73. Tunay, N., & Tunay, K. B. (2013). Finansal krizler ve sigortacılık: Deneysel bulguların ışığında Türk sigorta sektörüne dair değerlendirmeler. Marmara Üniversitesi İktisadi ve İdari Bilimler Dergisi, 35(2), 81-104.
74. UNCTAD. (2024). World investment report 2024. https://unctad.org/publication/world-investment-report-2024
75. Wang, X., Wu, Y., & Xu, W. (2019). Geopolitical risk and investment. Journal of Money, Credit and Banking. Forthcoming. https://dx.doi.org/10.2139/ssrn.3305739
76. Wolfers, J., & Zitzewitz, E. (2009). Using markets to inform policy: The case of the Iraq War. Economica, 76(302), 225-250. https://doi.org/10.1111/j.1468-0335.2008.00750.x
77. WTW. (2024). Geopolitical risk. https://www.wtwco.com/en-AU/Insights/trending-topics/geopolitical-risk
78. Wu, W., Wang, L., Erzurumlu, Y. O., Gozgor, G., & Yang, G. (2022). Effects of country and geopolitical risks on income inequality: Evidence from emerging economies. Emerging Markets Finance and Trade, 58, 4218–4230. https://doi.org/10.1080/1540496X.2022.2070002
79. Xu, H., & Moser, W. J. (2022). Terrorism and corporate tax avoidance. Abacus, 58(1), 174-208. https://doi.org/10.1111/abac.12235
80. Yakovlev, P. (2007). Arms trade, military spending, and economic growth. Defence and Peace Economics, 18(4), 317-338. https://doi.org/10.1080/10242690601099679
81. 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-0116160
82. Yu, M., & Wang, N. (2023). The influence of geopolitical risk on international direct investment and its countermeasures. Sustainability, 15(3), 1-14. http://dx.doi.org/10.3390/su15032522
83. Zhou, X. Y., Lu, G. Z., Xu, C. X., Yan, Q. S., Khu, T. J., Yang, F., Zhao, J., Yan, X., & Yang, J. (2023). Influence of the Russia-Ukraine war on global energy and food security. Resources, Conservation and Recycling, 188. https://doi.org/10.1016/j.resconrec.2022.106657