Causality between Domestic Debt, External Debt, and Economic Growth: The Case of Turkey Over the Period 1989-2012

This paper empirically investigates the relationship between domestic debt, external debt, and economic growth of Turkey over the period of 1989: 01-2012: 04. We examine this relationship using the vector autoregression models (VAR) and the Toda-Yamamoto causality technique. Econometric analysis suggests that there is unidirectional causality that runs from external debt to economic growth; however, the fact that domestic debt is a reason of economic growth could not be proven. External debt variable has been categorized as external debt of public and private sectors and both variables have been determined as the Granger causality of the economic growth. Finally, it could not be proven that 2001 economic crisis affected the causality between domestic debt and economic growth.