The relatıonshıp between current account defıcıts and unemployment ın turkey

Abstract

Two important economic problems that Turkey must solve in the short run are current account deficits and unemployment. Because current account deficits reflect the part of domestic investment that cannot be financed by domestic savings, increases in current account deficits theoretically should reduce unemployment. However, in Turkey current account deficits do not decrease unemployment, but further increases it. Economic growth in the Turkish economy observed following the economic crisis in 2001 led to current account deficits, but employment did not increase. This phenomenon is called economic growth without employment. The reason why economic growth increases current account deficits while it does not reduce unemployment is the Turkish economy’s production structure. The production structure of the Turkish economy leads to a high income elasticity of import. Therefore, economic growth raises import quickly and raises current account deficits, and reduces domestic production and employment. The purpose of this study is to analyze the relationship between current account deficits and unemployment in post-planned economy period in Turkey.