Causal Dynamics Between Export Diversification and Economic Growth in Turkiye

Abstract

This study investigates the causal relationships between export diversification and economic growth in Turkiye over the period 1995-2023, using Directed Acyclic Graphs (DAGs) to identify direct and indirect effects among key economic variables. The analysis incorporates export diversification (measured by the Herfindahl-Hirschman Index - HHI), GDP per capita as a proxy for economic growth, inflation, exchange rate, trade, and foreign direct investment (FDI) inflows. The findings reveal a significant interplay between export diversification and economic growth: GDP per capita directly influences export diversification and trade, while export diversification, in turn, impacts inflation and trade dynamics. Moreover, inflation is found to affect the exchange rate, and FDI plays a critical role in shaping export diversification patterns. These results highlight the complex feedback loops between export diversification and economic growth, emphasizing the importance of diversification as a policy lever to enhance trade resilience and sustainable economic development in Turkey. The study contributes to the literature by providing empirical evidence on the interdependence of export diversification and growth in a developing country context, offering practical insights for policymakers.