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Analysis of External Debt-Based Growth Hypothesis with Markov Regime Switching Models for the Turkish Economy

Author

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  • Yusuf Dogan

    (Zonguldak Bulent Ecevit University, Faculty of Social Sciences, Department of Economics, Zonguldak, Turkiye)

  • Deniz Sukruoglu

    (Zonguldak Bulent Ecevit University, Faculty of Economics and Administrative Sciences, Department of Economics, Zonguldak, Turkiye)

Abstract

This study presents the effects of Turkiye’s external debt on economic growth and is examined with Markov Regime Switching Models, unlike previous studies, considering that Hamilton’s (1989) regime-switching models are a very powerful tool for modeling non-stationary time series. In this study, annual data for the period 1970–2020 were used for the Turkish economy. Countries use external borrowing to achieve economic growth and development objectives. However, the effect of external debt on economic growth is still debated in the literature. The vast majority of empirical investigations have shown that external borrowing has a negative impact on economic growth. In the analyses, the 1970–2020 period of the Turkish economy was divided into three periods, which can be named growth, crisis, and pre crisis periods. Analyses show that only the coefficient of the gross external debt stock variable differs in the obtained regimes. According to the results of the analyses, it is seen that the gross external debt stock has a negative effect on Turkiye’s economic growth in all regimes, including the growth period, while the gross fixed capital formation, export, and population have a positive effect

Suggested Citation

  • Yusuf Dogan & Deniz Sukruoglu, 2022. "Analysis of External Debt-Based Growth Hypothesis with Markov Regime Switching Models for the Turkish Economy," Istanbul Journal of Economics-Istanbul Iktisat Dergisi, Istanbul University, Faculty of Economics, vol. 72(72-1), pages 329-360, June.
    • Handle: RePEc:ist:journl:v:72:y:2022:i:1:p:329-360
    DOI: 10.26650/ISTJECON2022-1034639
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    References listed on IDEAS

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    More about this item

    Keywords

    External Debt; Economic Growth; Markov Regime Switching Model JEL Classification: F34 ; O47 ; C24;
    All these keywords.

    JEL classification:

    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence
    • C24 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Truncated and Censored Models; Switching Regression Models; Threshold Regression Models

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