External Debt and Economic Growth in Turkey: An Empirical Analysis

Abstract

This study analyzes the impact of external debt stock, openness and the consumer price index on economic growth, based on time series data obtained from the World Bank for the period from 1970 to 2016. For this report's purpose, the stability of the series was analyzed. Having identified the series to have first degree l(1) stability, the ARDL bounds testing approach was applied and a relationship of cointegration was established. In light of these findings, it has been observed that external debt has a positive impact on economic growth, while openness and consumer price index have a negative impact. Therefore, this study recommends keeping openness and the consumer price index under control to increase economic growth with the help of external debt.

Debt Sustainability and Economic Growth in Nigeria

“…Thus, a decrease in debt stock could shrink expansion opportunities and lead to a long-run decrease in GDP growth. Similar findings have been documented by previous authors [12,13]. Moreover, [10] also showed how debt stock initially derails economic growth, but improve it subsequently.…”

“…The issue of how debt influences economic growth has been a subject of interest in the empirical literature over the years. In much of the extant studies, the approaches adopted have been typically linear, based on the assumption that the debt -growth nexus is monotonic [9,10,11,12,13]. As a result, findings of these IOP Publishing doi:10.1088/1755-1315/1054/1/012053 3 studies have been inconsistent, for both the short-run and the long-run.…”

“…The study suggested a judicious use of external debt based on the findings. [13] sought to unravel how external debt affects economic growth for Turkey, and also implemented the ARDL methodology. From the findings, it was revealed that foreign debt had played a positive role in shaping Turkey's economic growth, whether in the short-or long-run.…”

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“…However, other empirical literature supports a positive association between external debt and growth (Gövdeli, 2019;Musibau et al, 2018). Nonetheless, other previous studies showed no significant relationship between external debt and economic growth (Hassan et al, 2015;Ibi & Aganyi, 2015).…”

“…A growing number of empirical studies showed the inverse relationship of external debt and economic growth (Calderon & Fuentes, 2013;Celik & Başkonuş-Direkci, 2013;Cicek, Gozegir, & Cevik, 2010;Cöğürcü & Coban, 2011;Kharusi & Ada, 2018;Muhia & Yasin, 2018;Safdari & Mehrizi, 2011). However, other empirical literature supports the positive association of external debt and growth (Gövdeli, 2019;Musibau, Mahmood, Ismail, Shamsuddin, & Rashid, 2018). Nonetheless, other studies showed no significant association of external debt and sustainable growth (Hassan, Sule, & Abu, 2015;Ibi & Aganyi, 2015;Matthew & Mordecai, 2016).…”