THE TRADE EFFECTS OF DEINDUSTRIALIZATION IN THE TURKISH ECONOMY: INSIGHTS FROM FOURIER COINTEGRATION METHOD

This study examines the long-term impact of deindustrialization on Turkey’s current account balance (CAB) from 1970 to 2024, taking into account smooth structural changes. In recent decades, the global rise of China has effectively absorbed a large share of the world’s manufacturing activity, reshaping production patterns and accelerating deindustrialization across both advanced and developing economies. Combined with labor-saving technological progress, this shift has contributed to declining manufacturing employment and shrinking industrial value-added shares worldwide, providing a broader motivation for the Turkish case examined here. To ensure robust analysis, the study employs both the traditional Augmented Dickey-Fuller (ADF) and the Fourier ADF unit root tests. While ADF suggests stationarity for CAB and GDP, the Fourier test—which accounts for structural breaks—indicates that all variables are integrated of order one, I(1). The Fourier Engle-Granger cointegration test confirms a long-run relationship among the variables. The negative and significant error correction terms show gradual adjustment toward equilibrium, with nearly 50% correction within a year in the employment model and 31% in the GDP model. Estimated long-run coefficients are negative, implying that declines in industrial employment and industrial GDP adversely affect the CAB. Fourier Granger causality tests further reveal that both employment and GDP Granger-cause changes in the CAB in the long run. Overall, the findings highlight the structural impact of deindustrialization on external balances in developing economies like Turkey and underline the importance of sustainable industrial policy to enhance trade competitiveness and maintain a healthier current account position over time.