Economic Stability and Growth: The Case of Turkey

Abstract

As the theory of economy began to mature, unemployment and economic growth became one of the fundamental macroeconomic indicators. Price stability, full employment and economic growth constitute the basic conditions of economic stability. If, in an economy inflation and unemployment rates reach to high levels and economic growth rates reach to low levels, economic instability will arise. In order to overcome these problems, a series of models are developed and they have taken their place in the history of economic thought. While existence of an inverse relationship was accepted between inflation and unemployment, in the 1970s and especially as the Petroleum Crisis was lived through, the concept of “stagflation” emerged. Therefore, the opinion that the thought to make a choice between inflation and unemployment should be abandoned has become widely accepted.

The aim of this study is to investigate how inflation and unemployment affects economic growth in Turkey between for the period of 2008:1 and 2017:3. In this context secondary data has been taken from Turkish Statistical Institute (TurkStat). The study differs from the previous ones because it provides research related to issues that were not investigated in previous studies related to Turkey with regards to the Industrial Production Index (IPI), Product Price Index (PPI) and the relationship of unemployment data for the long term and being related with reasoning. According to the Johansen cointegration test, there is a long term relationship between series. An increase of 1 percent in UNMP reduces IPI by 1.7 percent. Consequently, the paper recommended that in order to ensure economic growth in Turkey, especially policies that would reduce unemployment should be preferred.