Article Sidebar

Submitted
May 17, 2020
Accepted
August 31, 2020
Published
October 7, 2020
Download
PDF
Statistic
Read Counter : 933 Download : 907

Downloads

Download data is not yet available.

Main Article Content

Abstract

Macroeconomic uncertainties are expected to affect investment decisions. This study analyzes the effect of the real exchange rate, inflation, and growth uncertainties on private investment in Turkey, an emerging country. While a generalized autoregressive conditional heteroskedasticity (GARCH) model is adopted to measure uncertainties, the existence of a long-run relationship of the variables is assessed using the bound testing approach. Finally, an error correction model is estimated to capture the dynamic relationship. Findings/Originality: The results for the short-run dynamic estimation show that both inflation and real exchange rate uncertainties have a significant negative effect on investments. As for the long-run equilibrium, exchange rate, inflation, and growth uncertainties have a negative impact on private investments. The application of inflation targeting and exchange rate stabilization policy might effectively reduce uncertainty on investments, thus supporting economic growth in the short term.

Keywords

investment macroeconomic uncertainty bound testing

Article Details

License

Authors who publish with this journal agree to the following terms:

  1. Authors retain copyright and grant the journal right of first publication with the work simultaneously licensed under a Creative Commons Attribution-ShareAlike 4.0 International License that allows others to share the work with an acknowledgement of the work's authorship and initial publication in this journal.
  2. Authors are able to enter into separate, additional contractual arrangements for the non-exclusive distribution of the journal's published version of the work (e.g., post it to an institutional repository or publish it in a book), with an acknowledgement of its initial publication in this journal.
  3. Authors are permitted and encouraged to post their work online (e.g., in institutional repositories or on their website) prior to and during the submission process, as it can lead to productive exchanges, as well as earlier and greater citation of published work (See The Effect of Open Access).

Creative Commons License

Economic Journal of Emerging Markets by Center for Economic Studies, Universitas Islam Indonesia is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.

How to Cite
Öge Güney, P. (2020). Macroeconomic uncertainty and investment relationship for Turkey. Economic Journal of Emerging Markets, 12(2), 151–166. https://doi.org/10.20885/ejem.vol12.iss2.art3
Download Citation
Endnote/Zotero/Mendeley (RIS)
BibTeX

References

  1. Abel, A. B. (1983). Optimal investment under uncertainty. American Economic Review, 73(1), 228–233. https://doi.org/10.4324/9780203004937
  2. Bollerslev, T. (1986). Generalized autoregressive conditional heteroskedasticity. Journal of Econometrics, 31(3), 307–327. https://doi.org/10.1016/0304-4076(86)90063-1
  3. Byrne, J. P., & Davis, E. P. (2005). Investment and uncertainty in the G7. Review of World Economics, 141(1), 1–32. https://doi.org/10.1007/s10290-005-0013-0
  4. Darby, J., Hallett, A. H., Ireland, J., & Piscitelli, L. (1999). The impact of exchange rate uncertainty on the level of investment. The Economic Journal, 109(454), 55–67. https://doi.org/10.1111/1468-0297.00416
  5. Demir, F. (2009). Macroeconomic uncertainty and private investment in Argentina, Mexico and Turkey. Applied Economics Letters, 16(6), 567–571. https://doi.org/10.1080/13504850701206528
  6. Dixit, A., & Pindyck, R. (1994). Investment under uncertainty. Princeton, NJ: Princeton University Press.
  7. Dotsey, M., & Sarte, P. D. (2000). Inflation uncertainty and growth in a cash-in-advance economy. Journal of Monetary Economics, 45(3), 631–655. https://doi.org/10.1016/S0304-3932(00)00005-2
  8. Driver, C., & Moreton, D. (1991). The influence of uncertainty on UK manufacturing investment. The Economic Journal, 101(409), 1452–1459. https://doi.org/10.2307/2234895
  9. Engle, R. F., & Granger, C. W. (1987). Co-integration and error correction: Representation, estimation, and testing. Econometrica: Journal of the Econometric Society, 55(2), 251–276. https://doi.org/10.2307/1913236
  10. Ferderer, J. P. (1993). The impact of uncertainty on aggregate investment spending: An empirical analysis. Journal of Money, Credit and Banking, 25(1), 30–48. https://doi.org/10.2307/2077818
  11. Fischer, S., & Modigliani, F. (1978). Towards an understanding of the real effects and costs of inflation. Weltwirtschaftliches Archiv, 114(4), 810–833. https://doi.org/10.1007/BF02696381
  12. Folorunso, B. A., & Akinlo, A. (2010). Macroeconomic uncertainty and private investment in Nigeria. Pakistan Journal of Applied Economics, 20(1 & 2), 47–65. Retrieved from https://econpapers.repec.org/article/pjejournl/article10i.htm
  13. Gilchrist, S., Sim, J., & Zakrajšek, E. (2014). Uncertainty, financial frictions, and investment dynamics (NBER Working Papers No. 20038).
  14. Greene, J., & Villanueva, D. (1991). Private investment in developing countries: An empirical analysis. Staff Papers (International Monetary Fund), 38(1), 33–58. https://doi.org/10.2307/3867034
  15. Grier, K., & Perry, M. (2000). The effects of real and nominal uncertainty on inflation and output growth: Some GARCH-M evidence. Journal of Applied Econometrics, 15(1), 45–58. https://doi.org/10.1002/(SICI)1099-1255(200001/02)15:1<45::AID-JAE542>3.0.CO;2-K
  16. Güney, P. Ö. (2007). Fiscal theory of exchange rate determination: empirical evidence from Turkey. Economics Bulletin, 5(7), 1–12. Retrieved from https://econpapers.repec.org/RePEc:ebl:ecbull:eb-07e60002
  17. Güney, P. Ö. (2016). Does the central bank directly respond to output and inflation uncertainties in Turkey? Central Bank Review, 16(2), 53–57. https://doi.org/10.1016/j.cbrev.2016.05.001
  18. Hartman, R. (1972). The effects of price and cost uncertainty on investment. Journal of Economic Theory, 5(2), 258–266. https://doi.org/10.1016/0022-0531(72)90105-6
  19. Hasanov, M., & Omay, T. (2011). The relationship between inflation, output growth, and their uncertainties: Evidence from selected CEE Countries. Emerging Markets Finance and Trade, 47(sup3), 5–20. https://doi.org/10.2753/REE1540-496X4704S301
  20. Iyke, B. N., & Ho, S.-Y. (2017). Exchange rate uncertainty and domestic investment in Ghana. Cogent Economics & Finance, 5(1), 1–12. https://doi.org/10.1080/23322039.2017.1362157
  21. Johansen, S. (1988). Statistical analysis of cointegration vectors. Journal of Economic Dynamics and Control, 12(2), 231–254. https://doi.org/10.1016/0165-1889(88)90041-3
  22. Lee, J. (2016). The impact of idiosyncratic uncertainty when investment opportunities are endogenous. Journal of Economic Dynamics and Control, 65, 105–124. https://doi.org/10.1016/j.jedc.2016.02.004
  23. Lensink, R. (2002). Is the uncertainty-investment link non-linear? Empirical evidence for developed economies. Weltwirtschaftliches Archiv, 138(1), 131–147. https://doi.org/10.1007/BF02707327
  24. Lian, W., Novta, N., Pugacheva, E., Timmer, Y., & Topalova, P. B. (2019). The price of capital goods: A driver of investment under threat (SSRN Electronic Journal). https://doi.org/10.2139/ssrn.3386368
  25. Lucas, R. (1973). Some international evidence on output-inflation tradeoffs. American Economic Review, 63(3), 326–334. Retrieved from https://econpapers.repec.org/RePEc:aea:aecrev:v:63:y:1973:i:3:p:326-34
  26. Ndiwulu, X. B., & Manzongani, J.-P. M. (2011). Uncertainty and investment behaviour in the Democratic Republic of Congo. Retrieved from https://econpapers.repec.org/RePEc:aer:wpaper:226
  27. OECD. (2018). OECD economic surveys: Turkey. Retrieved from http://www.oecd.org/eco/surveys/economic-survey-turkey.htm
  28. Pesaran, M. H., & Shin, Y. (1999). An autoregressive distributed lag modelling approach to cointegration analysis. In S. Storm (Ed.), Econometrics and Economic Theory in the 20th Century: the Ragnar Frisch Centennial Symposium (pp. 1–31). Cambridge: Cambridge University Press. https://doi.org/10.1017/CCOL521633230
  29. Pesaran, M. H., Shin, Y., & Smith, R. J. (2001). Bounds testing approaches to the analysis of level relationships. Journal of Applied Econometrics, 16, 289–326. https://doi.org/10.1002/jae.616
  30. Pesaran, M. H., & Smith, R. P. (1998). Structural analysis of cointegrating VARs. Journal of Economic Surveys, 12(5), 471–505. https://doi.org/10.1111/1467-6419.00065
  31. Pindyck, R., & Solimano, A. (1993). Economic instability and aggregate investment. In O. J. Blanchard & S. Fischer (Eds.), NBER Macroeconomics Annual 1993, Volume 8 (pp. 259–318). National Bureau of Economic Research, Inc. Retrieved from https://econpapers.repec.org/RePEc:nbr:nberch:11002
  32. Pradhan, G., Schuster, Z., & Upadhyaya *, K. P. (2004). Exchange rate uncertainty and the level of investment in selected South-east Asian countries. Applied Economics, 36(19), 2161–2165. https://doi.org/10.1080/0003684042000282498
  33. Redl, C. (2018). Macroeconomic uncertainty in South Africa. South African Journal of Economics, 86(3), 361–380. https://doi.org/10.1111/saje.12198
  34. Ruzima, M., & Boachie, M. K. (2018). Exchange rate uncertainty and private investment in BRICS economies. Asia-Pacific Journal of Regional Science, 2(1), 65–77. https://doi.org/10.1007/s41685-017-0062-0
  35. Saman, C. (2010). Macroeconomic uncertainty and investment – empirical analysis for Romania. Journal for Economic Forecasting, 13(2), 155–164. Retrieved from https://ideas.repec.org/a/rjr/romjef/vy2010i2p155-164.html
  36. Sarkar, S. (2000). On the investment–uncertainty relationship in a real options model. Journal of Economic Dynamics and Control, 24(2), 219–225. https://doi.org/10.1016/S0165-1889(99)00005-6
  37. Servén, L. (1999). Macroeconomic uncertainty and private investment in developing countries: An empirical investigation. The World Bank. https://doi.org/10.1596/1813-9450-2035
  38. Servén, L, & Solimano, A. (1993). Striving for growth after adjustment: The role of capital formation (No. 12530). Word Bank Regional and Sectoral Studies. Retrieved from http://documents1.worldbank.org/curated/en/303511468739161482/pdf/multi0page.pdf
  39. Servén, Luis. (2003). Real-exchange-rate uncertainty and private investment in LDCS. The Review of Economics and Statistics, 85(1), 212–218. https://doi.org/10.1162/rest.2003.85.1.212
  40. Uygur, E. (2010). The global crisis and the Turkish Economy (Turkish Economic Association Discussion Paper No. 2010/3).
No Related Submission Found