Exchange Rate, Export, and Import Relations in Türkiye: Does the Floating Exchange Rate Regime Meet Expectations?

A. Beyhan Akay

Journal of Research in Economics, Politics & Finance, 2023, vol. 8, issue 4, 643-659

Abstract: Türkiye has implemented different exchange rate regimes and foreign trade policies throughout its 100-year history. The foreign trade deficit has been a persistent issue since the establishment of the free-market economy and its opening to foreign capital and aid. Since 1980, export-oriented industrialization policies and the withdrawal of the fixed exchange rate regime have not effectively reduced the foreign trade deficit. This study used the VAR model to examine the relationship between the real effective exchange rate, exports, and imports from March 2001 to June 2023. To investigate the causality between variables, Granger causality test is performed; impulse response functions are used to establish the direction of the variables' reaction to shocks; and variance decomposition is used to evaluate the distribution of impact over periods. The study's findings contradict economic theory's predictions about exchange rate, export, and import linkages. The Granger causality test failed to identify a causal relationship between the real effective exchange rate and exports and imports, leading to the conclusion that the level of the exchange rate has no influence on exports and imports. The bidirectional causation between exports and imports, with import changes largely explained by exports, confirms Türkiye's export dependence on imports

Keywords: Real Effective Exchange Rate; Export; Import; Türkiye; VAR Analysis (search for similar items in EconPapers)
JEL-codes: F10 F14 F31 F41 (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:ahs:journl:v:8:y:2023:i:4:p:643-659

DOI: 10.30784/epfad.1359424

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