The Relationship between Current Account Deficits and Unemployment in Turkey

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Author(s): Mustafa Ozer (Anadolu University, Turkey)and A. Erinç Yeldan (Bilkent University, Turkey)
Copyright: 2016
Pages: 19
Source title: Handbook of Research on Comparative Economic Development Perspectives on Europe and the MENA Region
Source Author(s)/Editor(s): M. Mustafa Erdoğdu (Marmara University, Turkey)and Bryan Christiansen (PryMarke, LLC, USA)
DOI: 10.4018/978-1-4666-9548-1.ch020

Keywords: Business & Management / Business Science Reference / Economics & Economic Theory / Economics and Economic Theory

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Abstract

In this chapter, we test the nature of the variety of empirical relationships between current account deficits and unemployment in Turkey over 2000Q1–2012Q1. Our working hypothesis in this paper is that the meager job creation in Turkey over 2000s is the direct symptom of a speculative-led growth environment (Grabel, 1995) together with an excessively open and unregulated capital account in the age of relatively cheap and abundant global finance. Based on the vector error correction model (VECM), we found that there is a unidirectional causality running from current account deficits to unemployment. Both Impulse Response and Variance Decomposition analyses are quite consistent with results of VECM. We interpret these findings as evidence of the structural characteristics of unemployment, reflected in output elasticities, being embedded under the deepening external fragility of the Turkish economy over the 2000s.

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