AN EMPIRICAL STUDY ON THE RELATIONSHIP BETWEEN CRUDE OIL PRICES AND CURRENT ACCOUNT DEFICIT IN TURKEY

Abstract

The foreign trade balance of countries such as Turkey which import energy is considerably responsive to energy prices and especially to crude oil prices. Considering the increase in crude oil prices in the last 15 or 20 years, this situation is presumed to be affecting negatively the current accounts balance. Increase in crude oil prices affect enterprises in Turkey as well, because crude oil prices appear to be the factor directly affecting the costs of enterprises. In this study, it is aimed to determine how the fluctuations in oil prices which have various influence on Turkish economy effect Turkish current account deficit in the 1998Q1-2015Q3 period using time sequence method. In this framework, stationarity of series concerning the variables of Brent crude prices and of the ratio between Turkey’s current account deficit and GDP is examined using Augmented Dickey Fuller (ADF), Phillips Perron (PP), Kwiatkowski-Phillips-Schmidt-Shin (KPSS) unit root tests and it is confirmed that difference value of series is stable. Then, the co-integration relation between the series which are stable in the same level is examined with the method of ARDL (Autoregressive Distributed Lag) Border Test by which it is deduced that there is a co-integration relation between the series. Along with that, by obtaining long term and short term coefficients the effect of crude oil prices on current account deficit of Turkey is presented numerically. Finally using Granger Causality Test to determine the direction of the relation, it is found that there is one sided causality from crude oil prices to current account deficit of Turkey. All these results indicate that crude oil prices in the world has a permanent and important impact on Turkey’s current account deficit.