Testing Twin Deficits and Saving-Investment Nexus in Turkey
Testing Twin Deficits and Saving-Investment Nexus in Turkey

Ferda Halıcıoğlu [1] , Kasım Eren [2]

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This paper provides fresh evidence on the validity of twin deficit and the Feldstein-Horioka hypotheses for Turkey during the period of 1987-2004 using bounds testing approach to cointegration. In order to explain the main determinants of the current account deficits in the long-run, the fiscal balance and the domestic investments are used in an econometric model.The cointegration tests indicate the presence of a long-run relationship between the current account and budget deficits as well as the domestic investments during the estimation period.  As a result, it is concluded that the twin deficit hypothesis and the Feldstein-Horioka puzzle are present and Turkey appeared to be integrated into the world capital market with a low degree of capital mobility as less than 1/5 of its domestic investment is financed through external funds. The augmented Granger-causality tests suggest no causality between the current account and budget deficits, both in the short-run and the long-run. The post-sample variance decompositions suggest that the domestic investments are the main cause of current deficits in the long-run. The paper also discusses the policy implications of the empirical results.

This paper provides fresh evidence on the validity of twin deficit and the Feldstein-Horioka hypotheses for Turkey during the period of 1987-2004 using bounds testing approach to cointegration. In order to explain the main determinants of the current account deficits in the long-run, the fiscal balance and the domestic investments are used in an econometric model.The cointegration tests indicate the presence of a long-run relationship between the current account and budget deficits as well as the domestic investments during the estimation period.  As a result, it is concluded that the twin deficit hypothesis and the Feldstein-Horioka puzzle are present and Turkey appeared to be integrated into the world capital market with a low degree of capital mobility as less than 1/5 of its domestic investment is financed through external funds. The augmented Granger-causality tests suggest no causality between the current account and budget deficits, both in the short-run and the long-run. The post-sample variance decompositions suggest that the domestic investments are the main cause of current deficits in the long-run. The paper also discusses the policy implications of the empirical results.

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Yazar: Ferda Halıcıoğlu
Kurum: Department of Economics , Faculty of Political Sciences, Istanbul Medeniyet University
Ülke: Turkey


Yazar: Kasım Eren
Kurum: Department of Economic, Yildiz Technical University
Ülke: Turkey


Bibtex @araştırma makalesi { yssr307552, journal = {Yildiz Social Science Review}, issn = {2149-4363}, address = {Yıldız Teknik Üniversitesi}, year = {}, volume = {3}, pages = {35 - 46}, doi = {}, title = {Testing Twin Deficits and Saving-Investment Nexus in Turkey}, key = {cite}, author = {Eren, Kasım and Halıcıoğlu, Ferda} }
APA Halıcıoğlu, F , Eren, K . (). Testing Twin Deficits and Saving-Investment Nexus in Turkey. Yildiz Social Science Review, 3 (1), 35-46. Retrieved from http://dergipark.gov.tr/yssr/issue/33541/307552
MLA Halıcıoğlu, F , Eren, K . "Testing Twin Deficits and Saving-Investment Nexus in Turkey". Yildiz Social Science Review 3 (): 35-46 <http://dergipark.gov.tr/yssr/issue/33541/307552>
Chicago Halıcıoğlu, F , Eren, K . "Testing Twin Deficits and Saving-Investment Nexus in Turkey". Yildiz Social Science Review 3 (): 35-46
RIS TY - JOUR T1 - Testing Twin Deficits and Saving-Investment Nexus in Turkey AU - Ferda Halıcıoğlu , Kasım Eren Y1 - 2018 PY - 2018 N1 - DO - T2 - Yildiz Social Science Review JF - Journal JO - JOR SP - 35 EP - 46 VL - 3 IS - 1 SN - 2149-4363- M3 - UR - Y2 - 2017 ER -
EndNote %0 Yildiz Social Science Review Testing Twin Deficits and Saving-Investment Nexus in Turkey %A Ferda Halıcıoğlu , Kasım Eren %T Testing Twin Deficits and Saving-Investment Nexus in Turkey %D 2018 %J Yildiz Social Science Review %P 2149-4363- %V 3 %N 1 %R %U
ISNAD Halıcıoğlu, Ferda , Eren, Kasım . "Testing Twin Deficits and Saving-Investment Nexus in Turkey". Yildiz Social Science Review 3 / 1 35-46.