The Causality Analysis of External Debt Service and GNP: The Case of Turkey

Erdal Karagol

Central Bank Review, 2002, vol. 2, issue 1, 39-64

Abstract: It is argued that debt service burden has a negative impact on investment and capital accumulation. The main reason is that the greater percentage of reserves (foreign currency) goes to meet debt service and there will be a reduction in external capital because of a decrease in creditworthiness. This paper extends the model of Cunningham (1992) and uses multivariate cointegration techniques to develop a vector error correction model useful for investigating the long-run effects of external debt service on GNP level. Moreover, the information on cointegration (Johansen ,1988 and Johansen &Juselius ,1990) in variables are taken into consideration in specifying the correct model. We apply our methodology to Turkey and show how external debt service is having a negative short -run impact on economic growth. The results also show that there is a uni-directional causal relationship between debt service and GNP level.

Keywords: Turkey; External Debt; Cointegration; Causality (search for similar items in EconPapers)
JEL-codes: C22 F34 F43 H63 (search for similar items in EconPapers)
Date: 2002
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Citations: View citations in EconPapers (37)

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