The Cost of Economic Growth in Turkey: Unavoidable Increase in Current Deficit

Abstract

In this study, the relationship between economic growth and current deficit is analyzed for Turkish economy with the annual data covering the period 1990-2015. Two variables; one is gross domestic product and the other one is current deficit, have taken place in the analyses. Time series data related to variables have been tested with ADF and PP Unit Root Tests, and it has been observed that the variables are stationary in the first level. In order to determine the causality relationship between variables, Granger Causality Test has been applied, and a unidirectional causality relationship from economic growth to current deficit as been found. Finally, Regression and Correlation Analyses have been applied in order to determine the direction and the degree of the relationship. The Regression Analysis has revealed that 1% increase in economic growth causes 3.43% increase in current deficit. In other words, the increase in growth causes increase in current deficit by affecting the balance of current account in a bad way.