IS THERE A RELATIONSHIP BETWEEN SHORT-TERM CAPITAL MOVEMENTS AND BALANCE OF FOREIGN TRADE? AN EMPIRICAL STUDY ON TURKEY

This work inquires whether there's a correlation between short-term capital movements and the net balance of foreign trade. To this end, the annual data pertaining to portfolio investment and net foreign trade balance of Turkey data received from the IMF for the period between 1986-2017 have been tested with the ARDL bounds test approach and were studied in regard to Error Correction Model (ECM). And to query short-term relationship, Granger Test over the ECM Model has been applied. In the light of the analyzes, a relationship was found between the variables in both long and short terms. The literature shows a number of studies on the impact of capital movements on various macro-economic variables, yet none on the empirical evidence of the impact and correlation of those movements on net foreign trade balance. The purpose of this study is to test the relationship between capital inflows and foreign trade balance and make a contribution to the literature. Portfolio investments are predominantly used in financing the current account deficit, these flows though result in a foreign trade deficit, which in turn contributes to the current account deficit. The result of this study will be significant for policy makers in managing this vicious circle