RELATIONSHIP BETWEEN HOT MONEY INFLOWS AND CURRENT ACCOUNT DEFICIT IN TURKEY

Abstract

Turkey has liberalized its foreign trade in 1980; it has also lifted restrictions on capital movements in 1989, and has adopted a liberal economic system. Especially after liberalization process, the foreign capital inflow of Turkey has increased considerably in the 2000. The current deficit has increased significantly due to increase in capital inflows. This study is to investigate the capital movements and foreign trade of Turkey by using empirical analysis. In this context, the 1998Q1-2019Q2 period examined whether foreign capital inflows caused current account deficit or not which is determined by the Granger causality test. According to the test results, while there was no statistically significant causality from direct investments to the current account deficit, it was determined that hot money inflows caused the current account deficit and the 10% increase in hot money inflows increased the current account deficit by 3.47%.