Aggregate Imports and Expenditure Components in Turkey

Abstract

Despite its recent growth performance, the Turkish economy has been experiencing current account imbalances, and has so far been able to continue these imbalances without jeopardizing economic growth. However, recent uncertainties in the world economy have urged policy makers to control these imbalances and to take actions accordingly in the short-run. The literature postulates that expenditure reduction and expenditure switching policies are two conventional measures to implement in an economy suffering from current account deficits. In this regard, the aim of the paper is to examine the role of expenditure components in import demand, which is among one of the most crucial elements of current account items. The empirical results indicate that demand for imports has a very sluggish adjustment process in response to any policy shocks, and consumption and export expenditure together with the relative prices are the important factors that seem to influence this adjustment process. The high dependence of dom...