Foreign Trade Deficit Sustainability of Turkey

Abstract

This paper examines whether the foreign trade deficit of Turkey is sustainable or not by using three-regime threshold autoregressive unit root test of Kapetanious and Shin (2006). Three models are estimated including linear OLS, two-regime self-exciting threshold autoregressive and three-regime self-exciting threshold autoregressive models. The three-regime threshold autoregressive model is chosen as appropriate model for foreign trade deficit of Turkey by employing sup-Wald test. The finding results of the three-regime threshold autoregressive unit root test indicate that Turkey’s foreign trade deficit is not sustainable.