Is Inflation a Trigger of Growth or a Harbinger of Economic Slowness? A Dynamic Threshold Model Analysis on 26 Sub-Regions of Turkey

This study aims to explain the effects of regional inflation thresholds on regional economic growth in 26 sub-regions (NUTS-2 level) in the Turkish economy by using dynamic threshold model analysis for the period 2004-2020. The findings of the analysis show that increases in regional inflation rates affect regional growth positively until reaching the threshold value, but negatively after exceeding the threshold value in 20 of 26 sub-regions. This result is in parallel with the findings frequently questioned in the literature in recent years and points out the phenomenon that is composed of the synthesis of the monetarist and the structural views. Besides, analysis findings showing that steady-state income convergence process is valid in 25 sub-regions reflect that increases in regional population ratios have statistically insignificant effects on regional economic growth. In addition, it has been observed that employment increases accelerate the growth processes of relatively developed regions, while statistically insignificant effects have been detected in underdeveloped regions. A similar result shows itself in terms of foreign trade data, and it is seen that the effect of foreign trade on regional growth is quite limited. When the results are evaluated as a whole, it can be mentioned that the distinction between developed and underdeveloped regions in the Turkish economy is sharp and that macroeconomic indicators affect the economic growth of the regions according to their development level.