Relationship with External Debt Burdens and Economic Growth in Turkey:Causality Analysis Between 1970-2017

Abstract

In this study, we examined the relationship between Turkey's external debt burdens and economic growth in three parts.Firstly, the changes in Turkey's foreign debt burden were looked over periodically. Later, some studies which are focus on the effects of external debt on economic growth were examined in the literature. In the last part of the study, causality analyses were conducted to define relationship between economic growth and external debt burdens by using annual data between 1970-2017. In the analysis, the variables of Real GDP ($, Base year 2010), private sector long term foreign debt stock, public sector long term foreign debt stock, short term foreign debt stock and total foreign debt stock were used. After the variables used in the study were made stationary, causality analyses were made among the variables.As a result of the causality analysis, a bidirectional causality was determined between the Real GDP and the long-term external debt stock of the private sector. In other words, the Real GDP and private sector long-term external debt stock mutually affect each other, it means when one increases or decreases, the other increases and decreases. Turkey a dynamic country which have young population and high consumption demand is in need of external debt to finance private sector investment.In addition, a unidirectional causality was determined from Real GDP to all other variables. In other words, the increase in real GDP is the reason for the increase of other foreign debt burdens. It means that when Turkey's economy grow, Turkey's long-term external public debt burden, total short-term external debt burden and total external debt burden are increase.