Financing the Current Account Deficit in the Turkish Economy: ARDL Bounds Test Approach

In recent decades, the current account deficit has become one of the most critical problems in the Turkish economy. The fact that the production structure of the Turkish economy is dependent on imports and that capital goods, semi-finished products and raw materials constitute the majority of total imports has led to the growth of this problem. The persistent deficit in the current account deficit makes its financing extremely important. To explain the funding of the current account deficit, the ARDL bounds test approach developed by Pesaran, Shin, and Smith (2001) is used in this study to analyze the short and long-run effects. Current Account Deficit, Official Reserves, Real Effective Exchange Rate, Private Sector Credit Growth, External Debt, and Foreign Direct Investment variables obtained from the Central Bank of the Republic of Turkey for 2005Q4 - 2024Q2 are used in the model estimation. As a result of the analysis, it is concluded that there is a cointegration relationship between the variables. These variables and their lagged values are essential in financing the current account deficit.