The Effects of Basic Macroeconomic Prices on Manufacturing Industry Production in Turkey

In this research; the effects of macroeconomic prices, such as interest rate, exchange rate, energy prices and wages, on Turkish manufacture industry production in the period 1992- 2008 are investigated. The aim of the research is to bring current macroeconomic policies in Turkey up for discussion once more. In this framework, the economic policies implemented in Turkey since 1980 are elaborated in the first place in order to interpret the economic trends between the years 1992 and 2008 ideally. Then for the purpose of analyzing the mentioned relations, various econometric methods are used. First of all, ARDL Bound Test is applied to series in order to investigate the long run relationship among them. Secondly, causality relationships are questioned by using Granger Causality Test based on Hsiao Approach; and impulse-response functions and variance decomposition tables obtained from Vector Autoregressive Model (VAR) are elaborated. At last, findings are evaluated within the economic framework drawn beforehand and the research is concluded by policy proposals. Accordingly, long run relationship among variables cannot be found, however at the end of causality tests all the variables except real wages are found to be “Granger cause of production”. Moreover, the impulse-response functions put forward that the production reacted negatively to real interest rate, positively to real effective exchange rate and negatively to real energy prices. The coefficient derived for real wages, on the other hand, is discovered to be insignificant. This can be explained by the export orientation policy that has targeted foreign demand instead of domestic. Above all, it should not be neglected that real wage level deserves considerable interest since it determines wealth of the majority of society. As a result of the analyses and assessments in the research, it can be concluded that these variables can and should be utilized as efficient and essential policy tools. Keywords: interest rate, exchange rate, energy prices, real wage, Turkish manufacture industry, ARDL Bound Test, Vector Autoregressive (VAR) Mode