Influence of Exchange Rate on the Economic Growth in the Turkish Economy

Abstract

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.

The Impact of Foreign Direct Investment on the Economic Growth of Egypt (1980-2018)

“…The author explained this relationship through two main reasons; the first is that depreciated currencies enhances the competitiveness globally and thus increases exports, the second is that depreciated currencies shifts the demand towards domestic goods. This is supported by (Karahan, 2020) as well.…”

The Asymmetric Indirect Impact of Real Exchange Rate on Economic Growth through Foreign Trade: An Asymmetric ARDL Panel Model

“…In the long run, the results of the nonlinear ARDL model (see (2020), and Karahan (2020). The finding also indicates that the direct impact of trade openness is negative on GDP but not significant, which is not consistent with previous studies (Lucas Jr, 1988;Redding, 1999;Young, 1991).…”

“…Their results showed that exchange rate volatility only had a short-term effect that would not encourage long-term market competitiveness and would thus eradicate systemic trade deficits. Karahan (2020) found that the impact of exchange rates on Turkey's economic growth was negative during the 2002-2019 period. The same results were found by Fatbardha, Hysa, Ugur, Mirela, and Marian (2020) in 14 Central and Eastern European countries between 2002 and 2018.…”

The Impact of Total Foreign Debt on the Economic Growth of Egypt (1980-2018)

“…The authors clarified this relationship through two main reasons; the first is that depreciated currencies enhance the competitiveness globally and thus increases exports, the second is that depreciated currencies shift the demand towards domestic goods. This could be supported by (Karahan, 2020) as well.…”