The relationship between exchange rates, foreign trade and economic growth: An application on Turkey

Abstract

The inevitable interaction of countries with each other in the globalizing world has made the relationship between foreign trade and exchange rate sizes important. Sustainable economic growth is important for countries to draw capital flows from abroad and for the continuity of investments. The present study investigates the relationship between exchange rate, foreign trade and economic growth in 2010-2019 period for Turkey. Level stability of series and the presence of unit roots were determined with ADF and PP unit root tests. Since there was a unit root problem in the level values of the variables, the first differences of the variables were examined. With ADF test, it was found that the most suitable model was up-to-date and stable. According to the results of Granger causality test, a one-way relationship was found from export to import and from exchange rate to import. No causality relationship was found between the other variables.

Keywords

• economic growth
• foreign trade
• exchange rate
• unit root analysis
• granger causality test