The Turkish Current Account Deficit

Abstract

During the 2011–2015 period, Turkey's current account deficit as a percentage of gross domestic product (GDP) was one of the largest among the Organization for Economic Co‐operation and Development countries. In this paper, we examine if this deficit can be considered optimal using the Engel and Rogers's approach. In this framework, the current account of a country is determined by the expected discounted present value of its future share of world GDP relative to its current share. A country whose income is anticipated to rise relative to the rest of the world is expected to borrow now and run a current account deficit. Our findings suggest that Turkey's current account deficit in 2015 may be considered optimal if the Turkish economy's share in the world economy could continue to grow at rates similar to the past or to the predictions from professional forecasts. The same approach, however, indicates that the current account deficit in 2011, at its peak, was unlikely to be optimal. (JEL F32, F41, F43)

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