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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.

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Bibliographic Info

Article provided by Research and Monetary Policy Department, Central Bank of the Republic of Turkey in its journal Central Bank Review.

Volume (Year): 2 (2002)
Issue (Month): 1 ()
Pages: 39-64

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Handle: RePEc:tcb:cebare:v:2:y:2002:i:1:p:39-64

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Related research

Keywords: Turkey; External Debt; Cointegration; Causality;

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Cited by:
  1. Luke Emeka Okafor & Joanna Tyrowicz, 2008. "Foreign Debt and Domestic Savings in Developing Countries," Working Papers, Faculty of Economic Sciences, University of Warsaw 2008-06, Faculty of Economic Sciences, University of Warsaw.
  2. Ertunc Alioglu & Can Erbil & Ferhan Salman, 2004. "Revealing Turkey’s Public Debt Burden: A Transparent Payments Approach," Public Economics, EconWPA 0409004, EconWPA.
  3. Erdal Karagol, 2004. "A Critical Review of External Debt and Economic Growth Relationship: A Lesson for Indebtedness Countries," Ege Academic Review, Ege University Faculty of Economics and Administrative Sciences, Ege University Faculty of Economics and Administrative Sciences, vol. 4(1), pages 69-78.
  4. Naeem Akram, 2013. "Empirical examination of debt and growth nexus in South Asian countries," Asia-Pacific Development Journal, United Nations Economic and Social Commission for Asia and the Pacific (ESCAP), United Nations Economic and Social Commission for Asia and the Pacific (ESCAP), vol. 20(2), pages 29-52, December.
  5. Ertunc Alioglu & Can Erbil & Ferhan Salman, 2004. "Revealing Turkey’s Public Debt Burden : A Transparent Payments Approach," Working Papers 0413, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.
  6. Erdal Karagol, 2006. "The Relationship Between External Debt, Defence Expenditures And Gnp Revisited: The Case Of Turkey," Defence and Peace Economics, Taylor & Francis Journals, Taylor & Francis Journals, vol. 17(1), pages 47-57.

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