Imported Inputs, Balance of Payments and Economic Growth: a model and a test on the case of Turkey.

• We rely on a multi-sectoral balance-of-payments constrained growth model that incorporates intermediate imports. • We explicitly incorporate the effects of intermediate imports and relative prices into the analysis. • The outcome of the study shows that the multi-sectoral balance-of-payments constrained growth model correctly predicts Turkey's growth path. • Heightened dependence on imported intermediates, resulting in a reduction in the income elasticity of export demand and an elevation in the income elasticity of import demand, could potentially exert adverse effects on the overall economic growth. • Countries, like Turkey, can benefit from increasing the usage of available domestic inputs in export production to reduce leakage occasioned by the extensive importation of foreign factor inputs. Several countries rely heavily on imported intermediate inputs for the manufacturing of their exported goods. Understanding the implications of this reliance on a country's growth performance is vital. To address this issue, we conducted an in-depth analysis using the multi-sectoral balance-of-payments constrained growth model with data from Turkey spanning 1970 to 2019. We used the autoregressive distributed lag method to estimate sectoral export, final import, intermediate goods import, and total import demand functions for five technology-based sectors. Subsequently, we calculated growth rates using the multi-sectoral balance of payments constrained growth models, factoring in the estimated income and price elasticities, as well as the respective sectoral shares in total exports, total imports, total final imports, and total intermediate goods imports. Our results demonstrate that the multi-sectoral balance of payments constrained growth model, which incorporates the impact of imported intermediate goods, successfully predicts Turkey's growth path. The findings indicate that structural changes in the production process and the use of imported intermediate inputs have a positive impact on exports. However, Turkey's significant dependence on imported intermediate goods during the production process leads to a decrease in the multi-sectoral balance of payments constrained growth rate. [ABSTRACT FROM AUTHOR]