# The Nexus among Competitively Valued Exchange Rates, Price Level, and Growth Performance in the Turkish Economy; New Insight from the Global Value Chains

^{1}

^{2}

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## Abstract

**:**

## 1. Introduction

## 2. Literature Review

#### Theoretical Framework

## 3. Methodology

#### 3.1. Technique of Data Collection and Specification of the Model

_{t}= β

_{0}+ β

_{1}lnREER

_{t}+ β

_{2}lnEXPT

_{t}+ β

_{3}lnIMPT

_{t}+ ε

_{t}

- lnRGDP = Economic growth
- lnREER = Real effective exchange rate
- lnEXPT = Export
- lnIMPT = Import

_{0}is the constant term, while β

_{i}(i = 0, 1…4) represents the coefficients of the explanatory variables. The signs of β

_{1}and β

_{2}are both expected to be positive. The expected sign of β

_{3}should be negative, as documented in the literature. While ε

_{t}is the white noise that takes into account the impacts of series not included in our model and should satisfy the assumption of normally and independently distributed around zero mean and constant variance (i.e., ε

_{t}~ NIID (0, 1)).

#### 3.2. Bounds Test for Cointegration

_{0}: λ

_{i}= 0, while H

_{i}: λ

_{i}≠ 0, i = 1, 2, 5 of no cointegration among the variables. It is important to note that sets of critical values for comparison have been reported by Pesaran et al. (2001). Overall, when the calculated “F-statistics” value is greater than both lower (i.e., I(0)) and upper bounds (i.e., I(1)), then there is cointegration among the variables, and H

_{0}: = 0 of no cointegration is rejected. When the f-values are between the upper and lower bounds, the decision is indecisive. If the considered variables are found to be cointegrated, we can run the ECM equation shown below:

_{1t}, ε

_{2t}, ε

_{3t}, and ε

_{4t}, are white noise (ε

_{t}~ NIID (0, 1)).

#### 3.3. Stability Test

## 4. Results

#### Stationarity Tests

_{a}and MZ

_{t}tests hypothesis is established as unit root, while the MSB and MPT tests are established as stationary. The result from Table 1 revealed that the test statistics of MZ

_{a}and MZ

_{t}tests are smaller than the critical values calculated by (Ng and Perron 2001) for all the variables. Correspondingly, Table 1 revealed that the test statistics of MSB and MPT tests are greater than the critical values calculated by (Ng and Perron 2001) for all the variables. The real GDP, real effective exchange rates, exports, and imports are integrated into the first order. As the results are consistent with the I(1) cointegrating order for all the series, this indicates that the degree of integrating problem does not exist among the study variables because the results are reversed.

At Level | At First Difference | |||||||
---|---|---|---|---|---|---|---|---|

Variables | MZ_{a} | MZ_{t} | MSB | MPT | MZ_{a} | MZ_{t} | MSB | MPT |

lnRGDP | 1.83783 | 2.94444 | 1.60213 | 197.035 | −19.3894 | −3.09663 | 0.15971 | 1.32415 |

lnEXPT | −0.30930 | −0.19469 | 0.62945 | 24.5696 | 1.18841 | 3.26535 | 2.74767 | 499.228 |

lnREER | −1.91433 | −0.77035 | 0.40241 | 10.5300 | −6.43326 | −1.79320 | 0.27874 | 3.80933 |

lnIMPT | −0.75727 | −0.36387 | 0.48050 | 15.7542 | 19.3452 | −3.10938 | −0.16073 | 1.26892 |

ADF | PP | |||
---|---|---|---|---|

Variables | Test-Statistics | Test-Statistics | Test-Statistics | Test-Statistics |

Level | First Diff. | Level | First Diff. | |

lnRGDP | −0.389949 | −6.514453 | −6.635688 | |

lnEXPT | −4.697329 | −6.257480 | −4.711909 | −6.515829 |

lnIMPT | −2.473180 | −5.859016 | −2.609744 | −7.097405 |

lnREER | −4.062896 | −5.031149 | −3.183120 | −4.273850 |

Model | ARDL (4, 4, 3, 4) | |||

Optimal Lag | 3 | |||

F-Statistics (Bounds test) | 12.12496 *** | |||

Critical—values | At 1% | At 2.5% | At 5% | At 10% |

Lower bound I (0) | 3.65 | 3.15 | 2.79 | 2.37 |

Upper bound I (1) | 4.66 | 4.08 | 3.67 | 3.2 |

## 5. Discussion

_{a}and MZ

_{t}tests are smaller than the critical values calculated by (Ng and Perron 2001) for all the variables. Correspondingly, Table 1 revealed that the test statistics of MSB and MPT tests are greater than the critical values calculated by (Ng and Perron 2001) for all the variables. By implication, the real GDP, real effective exchange rates, exports, and imports are integrated of the first order and are in line with the I(1) cointegrating order for all the series. Therefore, the extent of the integrating problem does not exist among the study variables because the results are reversed. The results from Table 2 also revealed the outcome of both the ADF and PP unit root tests for lnRGDP, lnREER, lnEXMPT, and lnIMPT based on order I(1). This means that the variables are first difference stationary. For that reason, the test satisfies the condition for the application of the ARDL bounds test for cointegration technique since none of the variables are I(2), as supported by the findings of Faisal et al. (2017).

## 6. Conclusions

_{−1}is negative (i.e., −0.1024 approximately) and statistically significant (i.e., 0.0000). Since our results are robust and the finding from ECM shows that the model’s lagged coefficient of the ECT is negative and statistically significant at 1%. Thus, the speed of adjustment requires 10% annually for the convergence to the long-run equilibrium to be met. Overall, the study concludes that there is a long-run relationship among competitive valued exchange rate, price levels, and economic performance in the Turkish economy, particularly when directed at achieving competitiveness in GVCs. Although our findings are unique in terms of the robustness of our results and the GVCs, they are similar to the findings of Ergin and Yetiz (2017), (Kandil 2004; Kandil and Mirzaie 2005; Tadesse 2009; Bahmani-Oskooee and Kandil 2007; Nabil and Veganzones-Varoudakis 2004). Similarly, Joof and Jallow (2020) find a long relationship between the exchange rate, price levels, and economic performance.

#### 6.1. Policy Implications

#### 6.2. Limitations

_{t}) captures the effects of other variables not included in the model, it is possible that other variables from the literature such as distribution of value-added in the value chain, foreign value-added shares, domestic value-added, bilateral value-added exports, and value-added for final consumption among other indicators would have further justified the research findings and conclusions.

## Author Contributions

## Funding

## Institutional Review Board Statement

## Informed Consent Statement

## Data Availability Statement

## Acknowledgments

## Conflicts of Interest

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**Figure 1.**Schematic Framework for Valued exchange rate, Price level, and Growth Performance Relationship. Source: Authors.

Fisher F-Statistics | Cointegration | ||
---|---|---|---|

EGT-JOT | EGT-JOT-BOT-BAT | ||

14.894 | 20.486 ** | Cointegrated | |

Statistical significance at 5% | 10.630 | 17.682 |

Variable | Estimate | Standard Error | T-Value | Probability |
---|---|---|---|---|

D(lnRGDP (−1)) | 0.084156 | 0.120309 | 0.699495 | 0.4932 |

D(lnRGDP (−2)) | 0.123677 | 0.109842 | 1.125949 | 0.2750 |

D(lnRGDP (−3)) | −0.221043 | 0.109829 | −2.012605 | 0.0594 * |

D(lnREER) | 0.070232 | 0.020201 | −3.476611 | 0.0027 *** |

D(lnREER (−1)) | 0.016175 | 0.019519 | 0.828714 | 0.4181 |

D(lnREER(−2)) | −0.061059 | 0.018480 | −3.304057 | 0.0039 *** |

D(lnREER(−3)) | −0.025803 | 0.018480 | −1.430308 | 0.1698 |

D(lnEXPT) | 0.207121 | 0.060887 | 3.401727 | 0.0032 *** |

D(lnEXPT (−1)) | −0.000683 | 0.061287 | −0.011139 | 0.9912 |

D(lnEXPT (−2)) | 0.201274 | 0.044887 | 4.483991 | 0.0003 *** |

D(lnEXPT (−3)) | −0.184381 | 0.036516 | −5.049385 | 0.0001 *** |

D(lnIMPT) | 0.021102 | 0.044406 | 0.475205 | 0.6404 |

D(lnIMPT (−1)) | −0.333924 | 0.062851 | −5.312969 | 0.0000 *** |

D(lnIMPT (−2)) | −0.361814 | 0.062946 | −5.748056 | 0.0000 *** |

C | 785 8 × 10^{3} | 5.09 8 × 10^{3} | 1.541101 | 0.1441 |

ECT (−1) | −0.102415 | 0.011898 | −8.607959 | 0.0000 *** |

Variables | Estimate | Standard Error | T-Value | Probability |
---|---|---|---|---|

lnREER | −0.271676 | 0.101964 | −2.664425 | 0.0158 |

lnEXPT | 1.712415 | 1.022736 | 1.674347 | 0.1113 |

lnIMPT C | 2.685797 13.911154 | 0.987151 2.963600 | 2.720757 4.694006 | 0.0140 0.0002 |

Statistical Tests/J-B Stat. | Probability | ||
---|---|---|---|

B-G Serial Corr. Lm-Test F-statistics | 0.295424 | Prob. F (2,26) | 0.7482 |

Heteroskedasticity Test (Harvey) | 1.317675 | Prob. Chi-square (2) | 0.5175 |

F-statistics | 1.569035 | Prob. F (5,28) | 0.1740 |

Obs R-square | 22.59770 | Prob. Chi-Square (5) | 0.2065 |

Normality Test | 1.069070 | - | 0.585942 |

Scaled explained SS Ramsey Reset Test F-statistics | 32.89948 0.070225 | Prob. Chi-Square (5) Prob. | 0.0172 0.7942 |

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## Share and Cite

**MDPI and ACS Style**

Shuabiu, U.A.; Usman, M.A.M.; Çavuşoğlu, B.
The Nexus among Competitively Valued Exchange Rates, Price Level, and Growth Performance in the Turkish Economy; New Insight from the Global Value Chains. *J. Risk Financial Manag.* **2021**, *14*, 528.
https://doi.org/10.3390/jrfm14110528

**AMA Style**

Shuabiu UA, Usman MAM, Çavuşoğlu B.
The Nexus among Competitively Valued Exchange Rates, Price Level, and Growth Performance in the Turkish Economy; New Insight from the Global Value Chains. *Journal of Risk and Financial Management*. 2021; 14(11):528.
https://doi.org/10.3390/jrfm14110528

**Chicago/Turabian Style**

Shuabiu, Umar Aliyu, Mohammed A. M. Usman, and Behiye Çavuşoğlu.
2021. "The Nexus among Competitively Valued Exchange Rates, Price Level, and Growth Performance in the Turkish Economy; New Insight from the Global Value Chains" *Journal of Risk and Financial Management* 14, no. 11: 528.
https://doi.org/10.3390/jrfm14110528