THE IMPACT OF CAPITAL FLOWS ON CURRENT ACCOUNT DEFICIT FOR TURKEY

Abstract

The impact of capital flows on macroeconomic variables is widely studied in applied literature. In this context, this paper aims to analyze the impact of short-term capital flows and foreign direct investment on current account deficit for Turkey by using quarterly data for the time period 1998-2015. We find out a positive and significant relationship between capital flows and current account deficit and negative insignificant relationship between capital flows and foreign direct investment. We use vector autoregression (VAR) model and impulse responses to analyze dynamics between variables.