Dependency on imported oil and its effects on current account

ABSTRACT

Oil price hikes can have disruptive effects on the current account balances of oil-importing developing countries, which largely depend on external energy sources for domestic output. Nonetheless, the relation between oil prices and current account has been analyzed only in a limited number of studies for the developing countries. This paper contributes to the literature by examining the dynamics of how oil prices impact the current account in Turkey for the period between 2004 and 2015. For this purpose, a rolling window analysis using an advanced resampling technique, namely maximum entropy bootstrap (meboot), for strongly dependent time series data was performed. The empirical results reveal that oil price fluctuations have considerable effects on Turkey’s current account balance. In order to curtail the current account deficit, it is crucial that Turkey redesigns its energy policies and seeks alternative energy sources.

KEYWORDS:

• Bootstrap
• current account
• oil price
• rolling windows
• Turkey

JEL Classification:

• C15
• F1
• Q43

Acknowledgments

We thank the anonymous reviewers and the editor for their suggestions.

Notes

¹ For further information regarding the meboot method and algorithm, the reader is referred to Vinod and de Lacelle (2009) and Hyndman (1996).

² R version 3.3.1 was used. The R code for rolling-meboot estimation is available from the authors.

³ See Adeyemi et al. (2010) for a review.