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Abstract
This study aims to examine the most important factors affecting the external debt in the Turkish economy. The relationship between the external debt and GDP, exports, imports, debt service to exports, foreign direct investment, reserves of foreign exchange and official exchange rates is estimated during the period 1980-2017, based on a number of standard studies in this field. In analyzing the time series, the study applies Johansson's co-integration test and Granger's Causality test within the VAR model. The study concluded to the following results: 1.There is a co-integration relationship between the study variables. That's, that there is a long-term equilibrium relationship between the external debt and its determinants. 2. There is a directional causal relationship from the foreign reserve to the external debt. 3. There is a directional causal relationship from the external debt to the exports. 4. The results of estimating regression model in the long-term showed that GDP, FDI, debt service to exports and foreign reserves are the most important factors affecting the external debt.
Keywords
Abstract
This study aims to examine the most important factors affecting the external debt in the Turkish economy. The relationship between the external debt and GDP, exports, imports, debt service to exports, foreign direct investment, reserves of foreign exchange and official exchange rates is estimated during the period 1980-2017, based on a number of standard studies in this field. In analyzing the time series, the study applies Johansson's co-integration test and Granger's Causality test within the VAR model. The study concluded to the following results: 1.There is a co-integration relationship between the study variables. That's, that there is a long-term equilibrium relationship between the external debt and its determinants. 2. There is a directional causal relationship from the foreign reserve to the external debt. 3. There is a directional causal relationship from the external debt to the exports. 4. The results of estimating regression model in the long-term showed that GDP, FDI, debt service to exports and foreign reserves are the most important factors affecting the external debt.
Keywords
- c: Probability based on MacKinnon (1996) one-sided p-values. In table (2), the Augmented Dickey-Fuller (ADF) test was applied to examine the time series stationary in the logarithmic form of the model at the level and at first Differences using the Intercept and the Intercept & Trend . The results of testing time series stationary, based on the SIC criterion in determining the lag length ,indicated that the time series were not all at the level but all are stable and integral at their first differences at a significant level of 0.001. So, we reject the null hypothesis which states that the variables time series has a unit root ( the time series is not stable) and we accept the alternative hypothesis which states that the variables time series has no unit root in the first difference (the time series is stable), that's, it is integrated of the first grade l (1). 4.2. Co-integration Test After examining time series stationary of the study variables and ensuring that the time series are stable and integrated of the first grade, the next step is to apply Johanson's co-integration test which is used in the case of more than two variables in the model. The main objective of co-integration test is to ensure a longterm equilibrium relationship between the study variables. In order to apply the co-integration test, the number of optimal lag length in the VAR model will be firstly determined according to the lowest value specified by the criterion (HQ, AIC).
- Prob.** None * 0.992356 444.7906 159.5297 0.0000 At most 1 * 0.922118 279.0785 125.6154 0.0000 At most 2 * 0.888464 192.2914 95.75366 0.0000 At most 6 0.314682 16.57618 15.49471 0.0343 Notes:Trace test indicates 7 cointegrating eqn(s) at the 0.05 level * denotes rejection of the hypothesis at the 0.05 level **MacKinnon-Haug-Michelis (1999) p-values By applying co-integration test, the results of (Trace test ) in table (4) show that the value of ( λtrace) is greater than the critical value at a significant level of 5% and that the number of cointegration vectors is r = 7 at a significant level of 5% which means that there is a long-term equilibrium relationship between some variables and this relationship between the variables does not differ in the long term. Figure 1 shows that the estimated VAR model achieves the Stability Condition. All transactions are smaller than one and that all the roots are within one circle which means that the model does not have a problem in the errors correlation or heteroscedasticity. 4.3. Granger's Causality Test The Granger causality test is applied to determine the causality direction in the estimated model variables. The null hypothesis of the model states that there is no causal relationship between the variables. Table 5: Results of Granger Causality Test Variables χ2 statistics Probability value Decision R E→ EXD 8.882180 0.0118 Causality DES/EXP→EXD 4.836161 0.089* Causality RE→ GDP GDP→ RE Bidirectional Causality
- EXR → GDP 6.194654 0.0452 Causality FDI/GDP→ RE 9.342224 0.0094 Causality EXP/GDP →R E 6.097541 0.0474 Causality DES/EXP→ RE RE→ DES/EXP
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