Twin deficit problem and feldstein-horioka hypothesis in Turkey: ARDL bound testing approach and investigation of causality


ALTINTAŞ H. , Taban S.

International Research Journal of Finance and Economics, vol.74, pp.30-45, 2011 (Refereed Journals of Other Institutions) identifier

  • Publication Type: Article / Article
  • Volume: 74
  • Publication Date: 2011
  • Title of Journal : International Research Journal of Finance and Economics
  • Page Numbers: pp.30-45

Abstract

The purpose of this study is to investigate the twin deficit problem for the Turkish economy using bounds testing approach known as ARDL (autoregressive distributed lag) to cointegration method and Toda and Yamamoto (1995) Granger causality test. The study covers the annual data from 1974 to 2010. The cointegration test results suggest that the variables are moving together in the long run. The positive value on the budget deficit coefficient implies that Turkey has a twin deficit problem. The presence of twin deficit has also been supported by the Toda-Yamamota causality test results. As expected, the negative and less than 1 investment coefficient indicates Feldstein-Horioka hypothesis holds. Further, it indicates that Turkey could not well-integrated into the international capital markets with the model revealing that one fifth of the investments are financed through foreign savings. © Euro Journals Publishing, Inc. 2011.