THE RELATIONSHIP BETWEEN INTERMEDIATE AND CAPITAL GOODS IMPORTS, INDUSTRIAL PRODUCTION AND ECONOMIC GROWTH: THE CASE OF TURKEY

Abstract

In this study, the relationship between intermediate goods import (M I ), capital goods imports (M C ), industrial production (IP) and economic growth (GDP) in Turkey was explored by using the quarterly data consist of 32 observations between 2010Q1 – 2017Q4. VAR Granger causality analysis was employed to explore the short-run causality and the direction between variables. It is concluded : a) a bidirectional causality between GDP and M I b ) a bidirectional causality between (IP) and (M I ), c) a unidirectional causality from IP to GDP, d) a unidirectional causality from M C to M I and there is not a causality between IP and M C . “Johansen Co-integration” test results indicated a long-run relationship between, M C , M I , IP and GDP. Variance decomposition test was employed to assess the variability of the dependent variable over time. As a result, while in the first period (quarter) GDP is explained by itself at 100%. However In the tenth period GDP is explained by 18% GDP, 18% M C , 32% M I and 32% IP .. As a result, in the short-term, industrial production and intermediate goods importation are the determinants of economic growth. However, in the long-term, capital and intermediate goods importation, industrial production are the determinants of economic growth in Turkey.