IS THE TURKISH TRADE DEFICIT SUSTAINABLE?

Sudi APAK (Trakya University)
Adil OĞUZHAN (Trakya University)
Ayhan UÇAK (Trakya University)

Turkish trade deficit structurally became a measure concern for the availability of the foreign currency in the country. In the last decade, Turkish economy had been affected by various domestic and international crisis. The impact of these developments in Turkish economy is a decrease in production but better balance of payments due to the devaluations and a decline in the imports. It has been argued that the trade deficits and balance of payments have a major impact on economic growth. Therefore it is needed to have a sustainable trade deficit to continue with the positive growth rates.

After the introduction, the causes of driving the budget and the trade deficits in the Turkish economy are going to be examined in the second section. In this part, the devaluations are run against the budget, trade deficits and annual GNP growth rates.

The third part of the study is about the crisis which Turkish economy faced in 1994 and 2001. The impact of the devaluations on economic growth will be analysed. In the fourth section, Turkish economy's external deficits' sensibility to devaluation and also its dynamics to grow will be analyzed according to the Marshall-Lerner condition. In addition, annual devaluation rates are regressed against trade deficits and GNP growth rates. The same analysis is done by using real depreciation which is the division of annual devaluation to the inflation rates.

The fifth section is on the role of monetary approach to the balance of payments. The monetary approach can be illustrated through Polak model linking the balance of payments to developments in the money market. By applying this model, IMF aims to tight the demand in the countries which have trade imbalances. Even though this approach is an useful analytical tool, it is seen that the import and growth rate of the economies start to decrease. The annual money supply growth (M1 and M2) effect will be tested against imports and GNP growth rates.

As a result, the paper examines the results of devaluations on budget, trade and GNP growth. In addition, money supply growth rates are regressed on imports and GNP growth. The positive results show that the sustainable trade deficit is needed for growth in Turkish economy.

In the regressions, one set of observations are taken from 1980 to 2001 while the other two tests cover 1980-1990 and 1990-2001 periods. The aim is to compare the full period of export- led growth with the first ten years of the structure and the crise period which is the last twelve year-period. The last part is the conclusions.