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Macroeconomic adjustment and private manufacturing investment in Turkey: a time-series analysis


  • Oner Guncavdi-super-˙
  • Andrew McKay


Despite the drastic switch to market-based policies and outward orientation in Turkey during the 1980s, private investment in manufacturing industry has still not revived after seventeen years of structural adjustment. This paper examines the main determinants of private investment in the manufacturing sector and the impacts of structural adjustment (particularly financial liberalisation as an integral part of the reform) on it. The results show that liberalisation policies in financial markets appear to have positive effects by reducing the stringency of quantity constraints on investment while the high interest rates resulting from financial liberalisation had no significant impact on investment. Macroeconomic instability, proxied by the variability of the inflation rate, seems to have discouraged investment in manufacturing.

Suggested Citation

  • Oner Guncavdi-super-˙ & Andrew McKay, 2003. "Macroeconomic adjustment and private manufacturing investment in Turkey: a time-series analysis," Applied Economics, Taylor & Francis Journals, vol. 35(18), pages 1901-1909.
  • Handle: RePEc:taf:applec:v:35:y:2003:i:18:p:1901-1909
    DOI: 10.1080/00036840310001628099

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    References listed on IDEAS

    1. Guncavdi, Oner & Bleaney, Michael & McKay, Andrew, 1998. "Financial liberalisation and private investment: evidence from Turkey," Journal of Development Economics, Elsevier, vol. 57(2), pages 443-455.
    2. Rama, Martin, 1990. "Empirical investment equations in developing countries," Policy Research Working Paper Series 563, The World Bank.
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    4. Paul Bennell, 1998. "Fighting for survival: manufacturing industry and adjustment in sub-Saharan Africa," Journal of International Development, John Wiley & Sons, Ltd., vol. 10(5), pages 621-637.
    5. Chhibber, Ajay & van Wijnbergen, Sweder, 1988. "Public policy and private investment in Turkey," Policy Research Working Paper Series 120, The World Bank.
    6. Hartman, Richard, 1972. "The effects of price and cost uncertainty on investment," Journal of Economic Theory, Elsevier, vol. 5(2), pages 258-266, October.
    7. Rodrik, Dani, 1995. "Political economy of trade policy," Handbook of International Economics,in: G. M. Grossman & K. Rogoff (ed.), Handbook of International Economics, edition 1, volume 3, chapter 28, pages 1457-1494 Elsevier.
    8. Breusch, Trevor S & Wickens, Michael R., 1987. "Dynamic Specification, the Long Run and the Estimation of Transformed Regression Models," CEPR Discussion Papers 154, C.E.P.R. Discussion Papers.
    9. Davidson, James E H, et al, 1978. "Econometric Modelling of the Aggregate Time-Series Relationship between Consumers' Expenditure and Income in the United Kingdom," Economic Journal, Royal Economic Society, vol. 88(352), pages 661-692, December.
    10. Nickell, Stephen, 1985. "Error Correction, Partial Adjustment and All That: An Expository Note," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 47(2), pages 119-129, May.
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    Cited by:

    1. Günçavdi, Öner & Küçük, Ali Erhan, 2013. "Investment expenditure and capital accumulation in an inflationary environment: The case of Turkey," Journal of Policy Modeling, Elsevier, vol. 35(4), pages 554-571.

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