We test for sustainability of Turkey’s current account position between 1987 and 2009 using the intertemporal solvency model of Craig S. Hakkio and Mark Rush (1991) and Steven Husted (1992). According to this approach, the intertemporal budget constraint is satisfied if there is cointegration between exports and imports+ (which include imports, net interest income and unilateral transfer payments). We test for, and find evidence of, cointegration using the standard Johansen test as well as the Allan W. Gregory and Bruce Hansen (1996) test. The latter allows for a structural break in the cointegrating relation. Further, dynamic GLS estimation shows a statistically significant relation between exports and imports+, although, we reject strong current account sustainability. Our evidence suggests that Turkey remains vulnerable to reversals in capital flows, but we believe this vulnerability will diminish as the service component of trade increases
Following the 1991 crisis, India undertook reforms that liberalized trade and investment. India faced current account deficits for most of the period following these reforms. This paper analyzes sustainability of India's current account position over the last decade using the intertemporal solvency model of Hakkio and Rush and Husted. In this theoretical framework, the intertemporal solvency constraint is satisfied if there is cointegration between inflows and outflows of the current account. This paper finds cointegration between the series when allowing for a structural break using the Gregory and Hansen procedure. Dynamic generalized least squares (GLS) estimation shows a strong relation between India's current account inflows and outflows. On the basis of the empirical results, this paper concludes that there has been an improvement in trade patterns and despite experiencing deficits, India's current account position is sustainable.
Foreign direct investment (FDI) is an important determinant of development. Thus, identifying the main drivers of investment is critical especially for emerging markets. The main aim of the article is to verify factors influencing FDI flows into Turkey. Research Design & Methods: Foreign investment can be affected by structural factors, such as growth and trade openness; stability factors, such as high fiscal deficits, inflation, and exchange rate changes; and global factors, such as the EU accession and the level of global liquidity. We examine the importance of these variables in affecting FDI flows into Turkey using quarterly data from 1992 to 2010 and cointegration and VECM methodology. Findings: We conclude that for Turkey (and perhaps other emerging markets) structural reforms that expand market size and trade opportunities yield more capital inflows than economic stabilisation efforts that address prices, exchange rates, and budget balances. Moreover, we find that during that period in Turkey, trade and investment were substitutes. Implications & Recommendations: Stabilisation efforts to control prices, exchange rates, and budgets matter, but not as much as structural reforms that impact market potential and trade flows. Contribution & Value Added: Previous literature generally finds that FDI and trade are complements in emerging countries. This was the case in Turkey as well in the eighties and early nineties. We show that the EU candidacy prospects have transformed the relationship between FDI and trade in Turkey.
Article type:research article
This paper focuses on monetary policy transmission through the bank lending channel in the euro zone. We analyze the relationship between output, inflation, short-term and longterm interest rates, and bank loans. In addition, based on recent concerns of rising deficits and debt we include three variables that capture fiscal vulnerability. Using quarterly data from 2002 to 2016 for the original twelve members of the euro zone
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