Proceedings of The 2nd International Conference on Advanced Research in Business, Management and Economics
The Relationship Between Public Expenditures and Foreign Trade Deficit: The Case of Turkey
Mustafa Gerceker, Ibrahim Ozmen and Mehmet Mucuk
Governments have to spend to meet social needs and intervene in economic life. Although these expenditures contribute positively to economic growth through the multiplier mechanism, they may lead to the foreign trade deficit. The foreign trade deficit is an important problem, especially for developing countries. Because interest rates must be raised to bring foreign savings to the country to finance the deficit. As a result of the increase in interest rates, investments will decrease. Besides, rising interest rates will negatively affect other components of aggregate demand and disrupt resource allocation. Therefore, the state should prefer domestic products more. Otherwise, because of the foreign trade deficit problem, the government attempts to cool the economy. This situation will cause a slowdown in the economic development process. This study aims to analyze the causal relationship between public expenditures and foreign trade deficit for the Turkish economy. The foreign trade deficit is among the main problems of Turkey’s economy.
Keywords: : public expenditures; trade deficit; causality; twin deficits; Turkish economy.