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Intertemporal Solvency of Turkey’s Current Account

  • Ayla Oğuş Binatli

    ()

    (İzmir University of Economics, Turkey)

  • Niloufer Sohrabji

    ()

    (Simmons College, Boston, Massachusetts, USA)

We test for sustainability of Turkey’s current account position between 1987 and 2009 using the intertemporal solvency model of Craig S. Hakkio and Mark Rush (1991) and Steven Husted (1992). According to this approach, the intertemporal budget constraint is satisfied if there is cointegration between exports and imports+ (which include imports, net interest income and unilateral transfer payments). We test for, and find evidence of, cointegration using the standard Johansen test as well as the Allan W. Gregory and Bruce Hansen (1996) test. The latter allows for a structural break in the cointegrating relation. Further, dynamic GLS estimation shows a statistically significant relation between exports and imports+, although, we reject strong current account sustainability. Our evidence suggests that Turkey remains vulnerable to reversals in capital flows, but we believe this vulnerability will diminish as the service component of trade increases.

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Article provided by Savez ekonomista Vojvodine, Novi Sad, Serbia in its journal Panoeconomicus.

Volume (Year): 59 (2012)
Issue (Month): 1 (March)
Pages: 89-104

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Handle: RePEc:voj:journl:v:59:y:2012:i:1:p:89-104
Contact details of provider: Web page: http://www.panoeconomicus.rs/

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