THE SUSTAINABILITY OF TURKISH EXTERNAL DEBT: EVIDENCE FROM FRACTIONALLY INTEGRATED APPROACH UNDER STRUCTURAL BREAKS

Abstract

This paper examines the external debt sustainability in Turkey over the period 1970-2010 by using fractionally integrated approach. As a first step, possible structural breaks in the data are not taken into consideration. The findings from Robinson(1994a) test reveal that the process is non-stationary with long memory, therefore, there is no evidence of external debt sustainability in Turkey. In the second step, structural breaks identified by Bai and Perron (1998, 2003) multiple structural break test, are included in the Robinson test. The results in the context of structural breaks still show that the external debt in Turkey is not sustainable.