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Relationship between External Debt and Economic Growth: An Econometric Analysis of the Turkish Economy

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  • Yağmur Yavuz

    (İstanbul Gedik Üniversitesi, İktisadi, İdari ve Sosyal Bilimler Fakültesi, Yönetim Bilişim Sistemleri Bölümü, İstanbul, Türkiye)

  • Mehmetsıddık Polat

    (İstanbul Gedik Üniversitesi, İktisadi, İdari ve Sosyal Bilimler Fakültesi, Uluslararası Ticaret ve Finansman (İngilizce) Bölümü, İstanbul, Türkiye)

Abstract

The phenomenon of economic growth being a leading indicator of economic progress in developing countries has long been accepted by economists and policymakers. In contrast to advanced economies, in developing economies, the pursuit of growth based on limited savings and capital accumulation often requires overcoming challenges through the utilisation of external resources, leading countries in this group, including Turkey, to resort to foreign borrowing. The contribution of external debt to economic growth after acquisition varies depending on the countries’ existing domestic resources and the areas in which the borrowed funds are utilised. Similarly, population growth and openness to foreign trade are key economic sources for many developing countries with limited productive resources. In this study, the external debt-economic growth relationship is discussed using economic variables based on the 1973-2021 period for the Turkish economy. Traditional unit root tests, namely the Augmented Dickey-Fuller Unit Root Test and the Phillips-Perron Unit Root Test, are employed in the analysis. This study also investigates the stationarity of variables using the Narayan and Popp (2010) Unit Root Test, which considers structural breaks, and the non-linear Fourier Kruse Unit Root Test developed by Güriş (2019), where structural breaks are modelled using Fourier functions. Furthermore, the long-term relationships between variables is examined using the ARDL Bound Test. The results indicate that external debt and population growth rate have a statistically significant and negative impact on economic growth, whereas the effect of openness to foreign trade on economic growth is statistically significant and positive.

Suggested Citation

  • Yağmur Yavuz & Mehmetsıddık Polat, 2024. "Relationship between External Debt and Economic Growth: An Econometric Analysis of the Turkish Economy," Journal of Economic Policy Researches, Istanbul University, Faculty of Economics, vol. 11(2), pages 334-354, July.
    • Handle: RePEc:ist:iujepr:v:11:y:2024:i:2:p:334-354
    DOI: 10.26650/JEPR1429732
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    References listed on IDEAS

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    More about this item

    Keywords

    External debt; Economic growth; Trade openness; Unit root test; ARDL JEL Classification : 047 ; F34 ; C01;
    All these keywords.

    JEL classification:

    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • C01 - Mathematical and Quantitative Methods - - General - - - Econometrics

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