FACTORS AFFECTING CURRENT ACCOUNT BALANCE OF TURKEY: A SURVEY WITH THE COINTEGRATING REGRESSION ANALYSIS

Abstract

In Turkish economy, especially in recent years, ratio of current account deficits to national income is considerably high. Interrelations between current account balance and other macroeconomic indicators make it important to investigate which factors to what extent affect the current account balance in terms of economic policy decisions. In this study, the relationships between current account balance and various macroeconomic variables in Turkish economy are investigated empirically with Johansen cointegration test and with cointegrating regression analyses (FMOLS, CCR and DOLS) for the 1994-2014 period. It is found that foreign trade balance is a strong explanatory of the current account balance; terms of trade and gross domestic product also have statistically significant effects on the current balance. According to the results Harberger-Laursen-Metzler (HLM) hypothesis seems to be valid for Turkey. Besides, results of the study reveal that domestic interest rates and real effective exchange rate affects Turkey's current account balance as expected but these variables are found to be insignificant.