The Nexus Between Imports and National Income in Turkey

Abstract

Nowadays the investigation of the relationship between import and national income has been the major issue of many empirical studies in literature. Keynesian Models traditionally argue that a rise in import decrease the net export and hence aggregate demand as a basic source of economic growth, which implies a negative causal relationship from import to national income. Contrarily, Endogenous Growth Models put forward that imports play a positive and promoting role in a rise in real national income via technology transfer. Accordingly, imports transfer new technologies embodied in capital and intermediate goods and thus spur production productivity especially in developing countries. Consequently, Endogenous Growth Models advocate the import-led economic growth while Keynesian Models assert import-led economic shrinkage. The aim of this paper is to test these arguments concerning with the impacts of import on Turkish economy. We use time series techniques based on Johansen co-integration and Granger causality tests and Innovation Accounting Techniques for the quarterly data from 2002 to 2014. Empirical findings indicate that there is a strong causality relationship from the imports towards economic growth, supporting the argument of Endogenous Growth Models. Thus, sustainable growth rates in Turkey need outward-looking policy including not only exports but also import and policy covering the measures supporting steadily financing of imports.