The Relationship Between Internal Debt and Growth: Case of Turkey

Government debt securities, domestically issued, borrowings the treasury made from the domestic markets to meet the temporary cash needs, and every sort of financial liabilities undertaken by secretariat of treasury, without regarding to whether or not depending on the bond, are termed as domestic borrowing. In Turkey, domestic borrowing was first applied for financing the construction of the railway of Fevzipaşa –Diyarbakır and, beginning from 1980, both the phenomenon of globalization gaining acceleration and liberalization trends making itself felt in every area made the domestic borrowing an important instrument of financing in eliminating the public deficits. As a result of populist approaches, the choice of borrowing instead of taxing ended up with the transformation of domestic debts into a vicious cycle in time. The crises of 1994, 1999, 2000, and 2001 stuck in the minds as experiences of crisis, in which especially the loads of interest on debts reached the important dimensions. As a financial crisis, the periods, when the debt crisis was felt the most heavily, of course, actualized in the processes of these cries experienced. There are a number of theoretical and empirical studies regarding to that the domestic debts have important effects at the level of economic activity. Among these studies; for the effects of domestic debts to be able to be scrutinized on especially real sector, the main variable selected is the growth rate in real GDP. In these studies carried out, in the periods, when the domestic borrowing that is short termed, and generally conducted on the aim of financing the debts increases, some findings were obtained regarding to that slowing was experienced in the growth rate. In this study, following the crises November 2000 and February 2001 experienced, in the frame of transition to strong economyprogram, especially for Turkish economy assuming a stable course, the relationship of domestic debt and growth has been attempted to be introduced. In the analyses, in which the quarterly data of the period 2001:1-2013:4 were used , the percentage variation occurring at the level of domestic debt and data set about growth rate were formed. In the analyses, the relationship between domestic debt and growth have been studied in the context of whether or not the variables move together in the long period and whether or not there is a causality relationship between them. According to the results of analysis, it has been identified that the domestic debts and growth are co-integrated and, at the significance level of 5%, there is a causality between domestic debt and growth by taking as a reference 6 lagging periods.