Apr 17, 2014 - 0 Comments - Data -

Balance of Current Account

Balance of Current Account shows to what extent national (private and public) savings covers (private and public) investment of a country. Current account deficit emerges when the supply of savings is not enough for the funds demanded for investment and this demand is covered by short or long term capital inflows. Ranging from an unequal distribution of natural resources to unequal distribution of power grounded in colonial history, a wide spectrum of possible causes explain why some countries have current account surpluses and others deficits.

When the size of current account deficit (or surplus) with respect to GDP grows, this indicates that the country is more dependent on and exposed to the dynamics and oscillations of global markets. This also entails increased fragility. A country with a large deficit, especially if the deficit is growing, loses credibility and begins to have difficulty in raising long term net capital inflow. A country with a large surplus, on the other hand, searches for investment opportunities in foreign markets. Yet, even in this case, this country will find itself dependent on and exposed to the dynamics and cycles of the global markets.

In Table 1, it is possible to track the trajectory of the Balance of Current Account and the Balance of Foreign Trade as its main driver from 1984 to 2012. We observe that during the 2000s, compared to the period prior to 2001, Turkey has become increasingly dependent on and exposed to net capital inflows. In other words, current account deficit, by enabling the debt financing of her increasing demands for investment funds, has become a crucial condition of possibility for Turkey’s post-2001 growth dynamics

Table 1

Sources:

The inflation dataset is downloaded from The Central Bank of The Republic of Turkey, “GENERAL STATISTICS” link.

Statistical Table: “CURRENT ACCOUNT” and “GOODS” under “Balance of Payments Detailed Presentation (Monthly, $ Millions)”

GDP dataset is downloaded from the OECD website, “Gross domestic product (GDP)” link.

Measure: “US $, current prices, current PPPs, millions”

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