Turkey’s Economic Fragility, Foreign Capital Dependent Growth and Hot Money

Abstract:

Despite a decade of strong growth, mainstream economists and financial markets have recently escalated their discussion of Turkey's economic ‘fragility’. Contrary to their focus on ‘excessive current account deficits’, the key to understanding Turkey's condition is the foreign capital inflows that facilitate and promote these deficits, and the extent of hot money in the inflows. This paper documents this central fragility and its current explosion. It also contributes to the debate with a detailed economic and operational definition of hot money in Turkey, not present in the existing literature.