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The Causality Analysis of External Debt Service and GNP : The Case of Turkey

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  • Erdal Karagol

Abstract

It is argued that debt service burden has a negative impact on investment and capital accumulation. The main reason is that the greater percentage of reserves (foreign currency) goes to meet debt service and there will be a reduction in external capital because of a decrease in creditworthiness. This paper extends the model of Cunningham (1992) and uses multivariate cointegration techniques to develop a vector error correction model useful for investigating the long-run effects of external debt service on GNP level. Moreover, the information on cointegration (Johansen ,1988 and Johansen &Juselius ,1990) in variables are taken into consideration in specifying the correct model. We apply our methodology to Turkey and show how external debt service is having a negative short -run impact on economic growth. The results also show that there is a uni-directional causal relationship between debt service and GNP level.

Suggested Citation

  • Erdal Karagol, 2002. "The Causality Analysis of External Debt Service and GNP : The Case of Turkey," Central Bank Review, Research and Monetary Policy Department, Central Bank of the Republic of Turkey, vol. 2(1), pages 39-64.
    • Handle: RePEc:tcb:cebare:v:2:y:2002:i:1:p:39-64
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    More about this item

    Keywords

    Turkey; External Debt; Cointegration; Causality;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt

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