Geopolitical Risk, The Real Effective Exchange Rate and Industrial Production in Türkiye: Evidence From a Fourier ARDL Approach

Abstract This study examines the short- and long-run relationships between geopolitical risk, the real effective exchange rate, and industrial production in Türkiye using monthly data from January 2014 to December 2024. A Fourier autoregressive distributed lag (FARDL) model is employed to accommodate smooth structural changes during a period marked by currency shocks, the COVID-19 pandemic, and heightened geopolitical tensions. The series are seasonally adjusted and logarithmically transformed, and unit root tests establish their suitability for bounds testing. The results provide evidence of cointegration among the variables. Long-run estimates indicate that a 1% increase in geopolitical risk and the real effective exchange rate is associated with approximately 0.15% and 0.57% lower industrial production, respectively. Since an increase in the exchange rate index denotes real appreciation, the latter finding suggests that appreciation weakens industrial output. Both variables exhibit negative contemporaneous short-run effects, followed by positive lagged responses. The error-correction coefficient indicates that approximately 19.2% of disequilibrium is corrected each month. Fourier dynamic ordinary least squares estimates corroborate the negative long-run relationships. These findings highlight the importance of supply-chain diversification, energy security, real exchange-rate stability, and stronger corporate risk management for industrial resilience. JEL Codes: E23, F31, F51