The Threshold Effects of Current Account Deficits on Economic Growth in Turkey: Does the Level of Current Account Deficit Matter?

This paper investigates the existence of the threshold effects of current account deficits on economic growth over the period of 1999:Q2 -2014:Q2 for Turkey by using recently developed threshold autoregressive (TAR) models that provide appropriate procedures for estimation and inference. Based on the estimation of the threshold model, the results reveal evidence of threshold effects related to the current account deficits in Turkey. According to the analysis results, the estimated threshold value of the deficits for economic growth is 4%, and any ratio of the current account deficits above this threshold has a negative effect on economic growth while any rate below this threshold has a positive effect on economic growth. The findings may contribute to political authorities and decision-makers as a guide for economic and political targeting in terms of keeping the deficit rate below the threshold level of 4% to prevent its negative effect on economic growth.