Are Compensation and Efficiency Hypotheses Valid in Regard to the Ottoman Empire (1846–1913)? Evidence from the Fourier ADL Method

In the middle of the nineteenth century the economic policy of the Ottoman Empire began to change. Economic developments during this period led to fluctuations in the Ottoman Empire’s import, export, and foreign trade balance. In this study the relationship between the variables of public expenditures, imports, exports, and trade openness is analyzed to test the validity of the compensation and efficiency hypotheses under the economic conditions of the Ottoman Empire between 1846 and 1913. The Fourier ADL cointegration test and estimators for long-run coefficients were used for the analysis. The results show that there is a long-run cointegration relationship between imports-government expenditures, and openness to internationalization-government expenditures. When analyzing the long-run coefficients, it is concluded that an increase in imports and openness to international trade increases government expenditures. These results show that the compensation hypothesis is valid