Balance-of-payments constrained growth model for the Turkish economy ☆ Atilla Gökçe a, ⁎, Erhan Çankal b,1 a Gazi University, Department of Econometrics, 06500 Ankara, Turkey b Yildirim Beyazit University, School of Management, Cinnah Cd. 16, 06690 Ankara, Turkey abstract article info Article history: Accepted 18 June 2013 Available online xxxx JEL classification: C32 F43 O40 Keywords: Thirlwall model Balance-of-payments constrained growth model Johansen cointegration methodology Economists have investigated the relationship between output and export in order to explain economic growth for long years. Numerous studies have found very close correspondence between the growth of out- put and export. It is commonly known that Thirlwall's papers indicate very tight relationship between the growth of output and the ratio of the growth of exports to the income elasticity of demand for imports. This paper aims to apply Thirlwall's balance-of-payments-constrained (BPC) model for the Turkish economy for 1968–2011 period. This research also evaluates the procedures of testing Thirlwall's principle by estimation of the income elasticity of demand for imports using the test of stationarity and cointegration methods. The findings are in accordance with the Harrod–Thirlwall growth model. The test results of Johansen cointegration procedure and the comments on these results are presented as well. © 2013 The Authors. Published by Elsevier B.V. All rights reserved. 1. Introduction The main purpose of this study is to test the validity of Thirlwall's balance-of-payments constrained (BPC) economic growth model for the Turkish economy. For this purpose, dynamic long-term relationships between gross domestic product and export will be determined by using Johansen (1991, 1995) cointegration method that is more preferable in the literature than the Dickey–Fuller test. The study consists of four parts such as literature review, theoretical foundation of the Thirlwall principle, econometric methodology, and empirical findings. Thirlwall (1979) showed that output and export are closely related to the elasticity of demand for import. Although he was unaware at the time, his finding was an estimate of the dynamic Harrod trade multipli- er. Thirlwall's research showed that the level of income is equal to the rate of level of export to the marginal propensity to import. Thirlwall also reminded that the slow and rapid growth rates caused by the balance of payments would lead to low and high productivity rates respectively. The countries may sustain their budget deficits financed by the capital flows in the short run. However, in the long run, they can hardly finance the capital inflow that is over a certain percentage of Gross Domestic Product (GDP) and ever increasing. International fi- nancial authorities push these countries to impose necessary policies to adjust in such situations. This model has been implemented in many countries today. Some of the important studies will be discussed in Section 2. 2. Literature review Atesoglu (1993a, 1993b, 1994) performed a research and used Johansen technique in order to test the BPC model for the U.S., Canada, and Germany. His study showed that export and real income are cointegrated in the long run. Bairam (1988, 1990, 1993) also contribut- ed to the literature by testing the model for many countries using cointegration analysis and supported the hypothesis of BPC growth. The model was also applied for India by Razmi (2005), for Latin America by López and Cruz (2000) and Holland et al. (2004), for Southeast Asia countries by Ansari and Xi (2000), and for Africa and East Asia countries by Hussain (1999). The findings of these studies were mostly in favor of the model except for some sub-periods. Thirlwall and Hussain (1982) studied on an extended model that allows unbalanced foreign trade along with capital flow in the long run. Their research on developing countries also led to the results that supported this extended new model. McCombie and Thirlwall (1997) tried to move the theory forward. Here, they wanted to make sure that the long run economic growth can be sustained by foreign borrowing. The theoretical result indicates that capital flows will not allow a country's growth to be higher than the rate Economic Modelling 35 (2013) 140–144 ☆ This is an open-access article distributed under the terms of the Creative Commons Attribution License, which permits unrestricted use, distribution, and reproduction in any medium, provided the original author and source are credited. ⁎ Corresponding author. Tel.: +90 5326528460; fax: +90 3122132036. E-mail addresses: atilla@gazi.edu.tr (A. Gökçe), ecankal@ybu.edu.tr (E. Çankal). 1 Tel.:+90 5056163680. 0264-9993/$ – see front matter © 2013 The Authors. Published by Elsevier B.V. All rights reserved. http://dx.doi.org/10.1016/j.econmod.2013.06.019 Contents lists available at SciVerse ScienceDirect Economic Modelling journal homepage: www.elsevier.com/locate/ecmod