The Relationship between IBRD Loans & IDA Credits and GNI in Turkey and Comparison with Different Countries

Lack of global funds due to 2009 global financial crisis necessitates foreign loans for emerging countries. Emerging countries with insufficient domestic savings often apply to external debts to achieve the desired economic growth rate. Especially with the end of the WW2, the World Bank began to give loans and credits to emerging countries for their economic development. The World Bank provides credits and loans to emerging countries through the International Bank for Reconstruction and Development (IBRD) and International Development Association (IDA). The fact that emerging countries' external borrowing for economic development made the relationship between external debt and economic growth important. The question of controversy is whether these external debts really increase the level of economic development in the country. This paper aims to analyze the relationship between IBRD Loans & IDA Credits and Gross National Income for Turkey for the period between 1987 and 2017. Johansen (1990) cointegration test is employed to investigate the long-term relationship between the variables. Granger (1969) causality test is used to test the direction of the relationship. The paper also compares the link between the two variables regarding developing/emerging countries and low income countries using Pedroni (1999) and Westerlund (2007) panel cointegration test - allowing for structural breaks - analysis for the period 1987-2017. According to the findings obtained in Turkey, there is a short-term and long-term relationship between these two variables. This relationship is positive both in the short term and long term. Also, a unidirectional causality from the loans and credits to GNI was determined. In the panel data studies conducted, a negative long-term relationship in emerging countries and unidirectional causality from loans and credits to GNI was determined. On the other hand, according to panel data results, no short or long term relationship was found in low-income countries. Therefore, there is no causality between variables in the low income countries