In this study, we investigate the sustainability of Turkish current account to GDP ratio in the long run by testing the null hypothesis of a unit root against the alternative of the smooth structural break with sign and/or size nonlinearity. Using nonlinear unit root tests, we find strong evidence in favour of the sustainability of Turkish current account deficit after taking into account both the smooth structural break and asymmetric speed of adjustment towards mean values. The core of our conclusion is twofold: first, we find that current account deficit is sustainable for Turkey in the analysed period; and second, sustainable current account deficit increased to around 5% of GDP in Turkey after the smooth structural break. Our results point out that current account deficits about 5% of GDP are sustainable if current account deficits permit greater FDI inflows and long‐term external borrowings that much more oriented towards productive activities in the economy. However, if domestic investments are mainly financed by short‐term external borrowings, then running current account deficits around 5% of GDP in the long run may generate inherent problems.
In seven decades of the multiparty democracy period, Turkey has experienced
four military coups. Even though the coups are thought to be a cold war
phenomenon in the literature, they are still relevant. The failed coup
attempt in 2016 reminds us that the military coup is still a critical issue
in Turkish democracy and the economy. Interestingly, there is not an
adequate amount of empirical research on the political economy of Turkey's
military coup experience. This study's motivation is to provide empirical
evidence for the economic growth-coup nexus literature with a core focus on
Turkey, which is a remarkable case in many aspects. For this purpose, we
extend an open-economy Cobb-Douglas production function with coups and use
the autoregressive distributed lags (ARDL) method for the period 1950 to
2014. According to the study's empirical findings, coup d'?tats negatively
affect real GDP in Turkey. Through structural reforms, Turkey should
strengthen its democratic institutions to prevent such antidemocratic
attempts.
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