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Re-examining Turkey's trade deficit with structural breaks: Evidence from 1989-2011

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  • Erten, Irem
  • Okay, Nesrin

Abstract

The goal of this paper is to examine the sustainability of the trade deficit of Turkey with cointegration techniques allowing for structural breaks. We follow Husted (1992) model, which shows that if a country’s exports and imports are cointegrated, and if the cointegrating vector is (1,-1), then its trade deficit is sustainable. First, classical cointegration tests indicate that exports and imports are cointegrated, but the cointegrating vector significantly differs from (1,-1). Next, the existence of cointegration is confirmed with an alternative method proposed by Silvestre and Sanso (2006) controlling for structural breaks. Our analysis detects two breaks in the cointegration relationship on 2001:01, and 2008:09, coinciding with economic crises. We show that since 2001, Turkish trade deficit has not been sustainable in the strong form, and after 2008, the country has moved away from sustainability. Based on our analysis, the sustainability of Turkey’s widening trade deficit is highly doubtful.

Suggested Citation

  • Erten, Irem & Okay, Nesrin, 2012. "Re-examining Turkey's trade deficit with structural breaks: Evidence from 1989-2011," MPRA Paper 56191, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:56191
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    References listed on IDEAS

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    More about this item

    Keywords

    Exports; Imports; Trade Deficit; Sustainability; Cointegration; Structural Breaks;

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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