Oil Price Fluctuations and Trade Balance of Turkey

The relationship between oil price fluctuations and the trade balance of Turkey is the main concern of this paper. Economic growth performance of Turkey depends on imported capital goods as well as imported oil. Oil price increases bring a heavy burden for Turkish economy. Therefore, it is important to analyze the effects of oil price increases on external balances as well as on economic growth rate. We aim to examine the effects of imported oil price fluctuations on Turkey’s trade balance using structural vector autoregression (VAR) model. The variables used in this model are imported crude oil price, imports of crude oil, industrial production index, and trade balance to GDP ratio. Monthly data set for the period of September 2009-June 2014 is used in this study. The results show that the oil price shock creates a negative impact on trade balance and this effect continues while declining for more than 10 months. Most of the variation in forecast error of trade balance ratio is explained by the shock on itself and only a limited variation, around 4%, is explained by oil price for a 10 months period.