Macroeconomic instability, capital accumulation and growth: The case of Turkey 1963-1999

Abstract

This study investigates the empirical relationships between macroeconomic instability, capital accumulation and growth in Turkey over the period 1963-1999. We use recent time series econometric techniques, such as cointegration and impulse response analysis, to analyze empirical relationships between the variables of interest. The results of this paper suggest that the chronic and increasing macroeconomic instability of the Turkish economy has seriously affected her capital formation and hence her growth. Furthermore, chronic macroeconomic instability seems to become a serious impediment to the public investment, especially, its infrastructure component, and shattered or, even reversed the complementarity between public and private investment in the long-run. Therefore, Turkish experience has shown that macroeconomic instability not only deteriorates economic growth but it could also reverse the complementarity between public and private investment in the long-run.Public Investment, Private Investment, Complementarity, Macroeconomic Instability