The traditional view asserts that there is a positive relationship between the foreign exchange rate and economic growth. So much so that an increase in foreign exchange rates enhances the net export volume and thus positively affects economic growth due to the increasing total demand. However, structural economists argue that there is an inverse relationship between the exchange rate and economic growth. Especially in developing countries, the input structure of production depends on imported capital and intermediate goods, so an increase in exchange rates makes import production inputs more expensive and thus negatively affects economic growth. Turkey, leaving foreign exchange rate free float since 2002, has implemented the Inflation Targeting (IT) regime as the monetary policy. Therefore, Turkey has a real experience to analyse the role of exchange rate changes on economic growth. Accordingly, in our study, using the quarterly data between 2002-Q1 and 2019-Q1, the relationship between exchange rate and economic growth was examined by employing Johansen cointegration test, Granger causality test and Innovation Accounting Techniques. Empirical findings suggest that there is a negative causal relationship between exchange rates and economic growth, as claimed by structuralist economists. In terms of policy implications, it can be argued that, even under the inflation targeting regime in Turkey, both price and exchange rate stability should be provided together.
s and Administrative Sciences, Economics Department --TurkeyEndogenous growth theories draw attention to technological innovation created within the research and development (R&D) activities to explain the productivity growth of new economies. Accordingly, this study attempts to identify the relationship between the business enterprise R&D expenditure and productivity growth via indicating the role of transformation in manufacturing sector towards high tech production. Thus, the hypothesis tested in this study is whether business enterprise R&D expenditure is a main determinant of high tech sectors of manufacturing. We examine the relationship between the intensity of business enterprise R&D expenditure and high technology specification in European countries based on a panel causality analysis performed by Generalized Method of Moments (GMM) for the annual data from 2000 to 2013. Empirical findings support that there is a strong causality from increasing business enterprise R&D intensity to the expanding share of high and medium-high manufacturing. Thus, our study concludes that business enterprise R&D expenditure is one of the main sources of improvement in the technological capability of high value-added production in Europe. The important policy implication of the results is that public policies should create an appropriate incentive for private R&D activities in order to provide a transformation in manufacturing sector towards high tech specification and continued growth in economy depending on innovation.
The direction of the causality relationship between public expenditures and economic growth is one of the most controversial issues of the literature, which also causes great disagreements in the design process of economic policies. There are two approaches to this subject, which are opposite each other and called “Wagner’s Law” and “Keynesian Hypothesis”. This paper aims to examine the validity of Wagner’s law and Keynesian proposition in Turkey using Autoregressive Distributed Lag (ARDL) model over the period of 1998-2016. The findings supported the “Keynesian Hypothesis”, which advocates a one-way causality relationship from public spending to national output. More specifically, the results of the study showed that the effect of public expenditures on economic growth was positive in the short term and negative in the long term. From an economic policy standpoint, it can be argued that policymakers can promote Turkish economic growth through expansionary fiscal policies in the short run.
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