erc/metu
INTERNATIONAL CONFERENCE IN ECONOMICS  IV
September 13-16, 2000, Ankara

Erratic Growth in Turkey: Fiscal, Financial, Inflation and Real Factors

Ercan Uygur (Ankara University)

Abstract  

In the 1980s, the Turkish economy had medium growth volatility among the emerging market economies. In the 1990s, volatility of GDP growth was one of the highest within the same group of countries and there was a significant decline in the mean growth rate. In the same period, investment growth was even more volatile than output growth as expected. Yet, output growth was much more volatile than inflation. This is striking, since Turkey has had one of the highest chronic inflations in the world in the last two decades.

The major aim of this paper is to examine and explain the factors that contribute to growth volatility. To this end, an empirical examination of the effect of fiscal, financial, inflation and real variables was made on cycles and growth rates of four output variables; GDP, non-agricultural GDP, industrial production and private manufacturing production. The empirical work was done on the basis of a reduced form production function and a growth equation. Fiscal, financial and inflation variables were chosen basically to represent macroeconomic uncertainty.

Budget deficits, budget transfer payments, public current expenditure and stock of public domestic debt were the four fiscal variables considered. Three financial variables were accounted for, namely real interest on government papers, private domestic credits and foreign capital inflow. Consumer price inflation, wholesale price inflation and expected inflation in private manufacturing were the three inflation variables used in empirical work. Finally, two real variables, namely labour productivity and total factor productivity, were used in the paper. Empirical work included both long-term co-integration and short-term error-correction estimations of the derived equations with quarterly data from 1980 to 1999.

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Middle East Technical University
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