DP13352 Economic Policy Uncertainty in Turkey

Author(s): La-Bhus Fah Jirasavetakul, Antonio Spilimbergo
Publication Date: December 2018
Date Revised: December 2018
Keyword(s): diff-in-diff estimation, economic uncertainty, employment growth, firm-level, Investment Decisions, leverage strategies, policy uncertainty, sector-level, Turkey
JEL(s): D80, E22, E66, L20, M51
Programme Areas: Public Economics, Development Economics, Macroeconomics and Growth
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=13352

Uncertainty over economic policy plays a key role in economic outcomes. But evidence and quantification for emerging markets are elusive because of measurement and reverse causality issues. In this paper, we construct a news-based economic policy uncertainty (EPU) index for Turkey and assess how it affects Turkish firms. To disentangle the issues of endogeneity and reverse causality, we use a difference-in-differences approach. In sectors with large irreversible investment EPU has a greater effect on growth, investment, and leverage. The results are robust to different definitions of investment irreversibility, lag structure, and selection of sectors.