The Causality Analysis of External Debt Service and GNP : The Case of Turkey

Erdal Tanas Karagöl

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Abstract

It is argued that debt service burden has a negative impact on investment and capital accumulation. The main reason is that the greater percentage of reserves (foreign currency) goes to meet debt service and there will be a reduction in external capital because of a decrease in creditworthiness. This paper extends the model of Cunningham (1992) and uses multivariate cointegration techniques to develop a vector error correction model useful for investigating the long-run effects of external debt service on GNP level. Moreover, the information on cointegration (Johansen ,1988 and Johansen &Juselius ,1990) in variables are taken into consideration in specifying the correct model. We apply our methodology to Turkey and show how external debt service is having a negative short -run impact on economic growth. The results also show that there is a uni-directional causal relationship between debt service and GNP level.

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References

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2022External debt and economic growth in Sub-Saharan Africa: Does governance matter?2011Impact of Public Debt on the Economic Growth of Pakistan.2004Does defence expenditure deter economic growth in Turkey? A cointegration analysis 2005THE RELATIONSHIP BETWEEN EXTERNAL DEBT, DEFENCE EXPENDITURES AND GNP REVISITED: THE CASE OF TURKEY 2019Growing external debt and declining export: The concurrent impediments in economic growth of Sub-Saharan African countries

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