External private debt and economic growth: Is there a lead-lag Granger-casual relationship? evidence from Turkey

There is a growing concern on tremendous increase in external debt stock of Turkey. Especially, with global financial crises, the sustainability of external debt and allocation of external debt to productive investments becomes more and more important. Many researches have been done to examine external debt stock and economic growth relation. However, External debt stock has not been broken down into external private debt and external government debt, which might give different results since the power and causality direction of external private debt (EPD) and external government debt (EGD) could be different. The objective of this paper is to make an humble attempt to test “the external debt led economic growth” hypothesis by breaking down compositions of external debt into External Private Debt and External Government Debt, particularly for Turkey over the period 1998Q1-2016Q1. For our analysis, standard time series techniques are adopted. Our findings of empirical analysis tend to suggest that, there is a significant causal relationship between external private debt and Gross Domestic Product and that external private debt leads GDP. These findings are useful and have policy implications for the developing countries like Turkey in that at least in the short run until the debt threshold is reached, an external private debt might be helpful for enhancing GDP.