Relationships among labour productivity, real wages and inflation in Turkey

Figures & data

Figure 1. Productivity, real wages and inflation in emerging market economies (average annual percentage changes, 2005–2007).

Sources: Mihaljek and Saxena (2010), International Monetary Funds (IMF).

Figure 2. Labour productivity, real wages (1988Q1 = 100), inflation and interest rates in Turkey. Sources: International Monetary Funds’ International Financial Statistics (IMF’s IFS), the Turkish Statistical Institutes (TUIK) and State Planning Organisation (SPO).

Table 1. Causality issue.

Real Wages → Productivity	Efficiency Wage Theory
Productivity → Real Wages	Marginal Productivity and Bargaining Theory
Productivity → Inflation	Standard Theoretical View
Inflation → Productivity	Alternative Theoretical View

Sources: Wakeford (2004); Saunders and Biswas (1987).

Table 2. Unit root tests.

	Level			First difference
Variables	ADF statistic	PP statistic	Variables	ADF statistic	PP statistic
pr	2.62 (4)	1.86(4)	∆pr	4.53(4)*	9.57(2)*
rw	2.81(4)	0.95(5)	∆rw	7.59(0)*	7.80(5)*
in	0.79(4)	1.71(2)	∆in	7.51(3)*	13.62(6)*

Notes: Both tests consist of a constant. Figures in parenthesis are lag lengths. ADF and PP critical values at 1% and 5%, respectively, are 3.50, 2.85 and 3.49, 2.89.

Source: Author’s own calculation.

* denotes statistical significance at the 1% level; bold emphasises statistical significance.

Table 3. Results for cointegration tests.

Panel A. Single equation cointegration tests
(a) EG cointegration test
Model	ADF statistic [lag]	Critical values 1% (5%)
Eqs. (1) and (2)	4.39 [0]**	−4.44 (–3.82)
(b) GH cointegration test
Model	ADF^*-statistics [lag]	Critical values				Break date
C	6.09 [0]*	5.44 (4.92)				1993:4
C/T	5.10 [0]	5.80 (5.29)				1991:3
C/S	6.44 [0]*	5.97 (4.50)				1993:4
(c) Bounds testing approach
(c1) Statistics for choosing the optimal lag length
p	AIC	SBC		p-val		p-val
1	−4.004	−3.712	1.866	0.171	8.595	0.072
2	−4.020	−3.646	3.151	0.075	8.458	0.076
3	−4.195	−3.738	6.965	0.008	9.753	0.044
4	−4.186	−3.645	8.417	0.003	9.310	0.053
5	−4.178	−3.552	7.671	0.005	7.875	0.096
6	−4.207	−3.494	5.124	0.023	13.19	0.010
(c2) Bounds test for cointegration
Model	Calculated F-statistics [lag] (number of regressor)	Critical value bounds of the F-statistics
		Lower bound I(0)1% (5%)				Upper bound I(1)1% (5%)
Eq. (4)	7.44* [6] (2), 8.23*[3] (2)	3.17 (3.79)				4.14 (4.85)

Panel B. System based cointegration test (Johansen approach)
(I) VAR model residuals autocorrelation test
Model	Lag	LM (1) [p-v.]	LM (4)	LM (8)
Eq. (3)	5	9.19 [0.41]	11.28 [0.25]	6.24 [0.71]
(II) Johansen cointegration test
Hypotheses		Trace test		Hypotheses		Max. eig. val. test
H0	HA		C. V. (5%)	H0	HA		C·V. (5%)
r = 0	r > 0	27.85	42.91	r = 0	r = 1	15.16	25.82
r = 1	r > 1	12.68	25.87	r = 1	r = 2	9.29	19.38

Note:

Critical values for the EG test are obtained from Enders (2010, p. 490) for three variables.

The lower and upper bound critical values for the bounds test are derived from Pesaran et al. (2001, p. 300), table CI(iii) case V: unrestricted intercept and unrestricted trend (k = 2).

Critical values for GH (1996) are obtained from Gregory and Hansen (1996, p. 109), Table 1.

Source: Author’s own calculation.

^* and

^** denote statistical significance at the 1% and 5% levels, respectively; bold emphasises statistical significance.

Table 4. Long-run elasticities.

Mod.1	EG	GH(C)	GH(C/S)	ARDL^a	DOLS	FMOLS
rw	0.16* (8.56)	0.19* (4.98)	0.20* (5.62)	0.14* (3.92)	0.18* (5.61)	0.16* (5.35)
in	−0.95* (4.61)	−1.55* (5.64)	−1.38* (4.83)	−2.20* (4.81)	−1.91* (5.03)	−1.44* (4.57)
Mod.2
rw	0.15* (7.90)	0.15* (3.32)	0.14** (2.71)	0.19* (4.01)	0.20* (4.85)	0.16* (4.94)
in1	−0.61** (3.15)	−1.74* (5.75)	−1.80* (5.42)	−2.01* (4.01)	−1.96* (3.89)	−1.14* (3.53)
Mod.3
rw	0.15* (7.52)	0.23* (5.07)	0.12** (1.97)	0.17* (2.79)	0.15* (3.97)	0.14* (4.19)
in2	−0.39** (2.36)	−0.95* (4.17)	−1.26* (4.51)	−1.08* (2.27)	−1.69* (3.51)	−0.75* (2.69)
Mod.4
rw	0.15* (7.53)	0.13* (2.13)	0.12** (1.96)	0.17* (2.93)	0.16* (3.95)	0.14* (4.21)
in3	−0.42* (2.50)	−1.28* (4.84)	−1.33* (4.94)	−1.22* (2.58)	−1.70* (3.47)	−0.78* (2.78)

^a The estimates of the coefficients depend on the ARDL model (1, 3, 2) selected by AIC.

^* and

^** denote statistical significance at the 1% and 5% levels, respectively.

Source: Author’s own calculation.

Figure 3. Graphical summary of causality tests.

Source: Author’s own calculation.

Table 5. Causality.

D. Var.	Source of causation							Direction of causality (conclusion)
	Short-run causality			Long-run causality	Strong causality			SR	LR	Strong
	Δpr	Δrw	Δin
	F-st.			t-st.	F-st.
Δpr	–	3.14*	3.62*	−0.18 (3.06)*	–	7.14*	4.44*		rw, in → pr
Δrw	0.20	–	0.50	−0.11 (0.81)	1.36	–	1.49
Δin	5.06*	5.23*	–	0.01 (0.31)	4.05*	4.38*	–	rw → in		rw → in

^* denotes statistical significance at the 1% level; bold emphasises statistical significance.

Source: Author’s own calculation.

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