The relationship between external debt and growth under the structural breaks in Turkey

Abstract

This study aims to investigate whether Turkey's external debt (by considering the debt maturity and ownership separately) has a relationship with economic growth and to explain the direction and size of these effects in case of their existence. At the same time, the relationship between consumption and investment, which are sub-items of growth, and external debt are also discussed. The data subject to the analysis in the study consists of gross domestic product and external debt data provided by the Central Bank of the Republic of Turkey Electronic Data Distribution System and covering the 1998Q1 and 2021Q4 periods. In this study, econometric methods, including both conventional and structural breaks, were used. According to the results, both short-term and long-term external debt significantly and positively affect gross domestic product, consumption and investment. In addition to this situation, it is seen that the effect of long-term external debts is more. However, it is also concluded that the effect of long-term external debt is greater. When evaluated separately on a sectoral basis, it is concluded that the significant and positive relationship between public sector external debt and economic growth and its sub-items is valid both in the short and long term. When the effect of external debt on investments is analyzed, it is seen that the effect of long-term external debt is more than short-term debt. The most important point to note here is that short-term private sector debt, which does not affect gross domestic product and consumption, has a significant effect on investment and is about three times the public sector short-term debt.