IS THERE A CO-INTEGRATION BETWEEN EXTERNAL DEBT INTEREST RATE AND GLOBALIZATION? THE CASE OF TURKEY

Abstract

This study explores the long-run association between globalization and external borrowing interest rate. The sample contains a time series data of Turkey containing years from 1970 to 2014. Firstly, a unit root test is conducted to see if the series are stationary or not. Secondly, ARDL bounds test is performed to figure out whether the series move together in the long-run. Then, both short-run and long-run coefficients of the variables are estimated by employing an error corrected form of ARDL model. Lastly, a causality test is conducted to see if there exists a causality relationship among series. The findings reveal that series of globalization and external borrowing interest rate are co-integrated and thus they move together in the long-run. Estimated long-run coefficients show that globalization has a reducing and statistically significant impact on external borrowing interest rate in Turkey. Moreover, a unidirectional causality running from globalization to external borrowing interest rate is detected. These results also remain valid for two different external borrowing interest rate series, which are interests charged by two different suppliers of official and private creditors.