International economic relations driven by the prevailing dominant mode of production should be analysed based on its current nature. Such an analysis is crucial in the course of domestic and foreign economic policies of the country depending on the place of a country in the international economic arena. The present study is based on the current account analysis, one of the most important items of the balance of payments. The model used in the study provides the possibility to analyse the relationships between different variables. The results indicated that the current account deficit increases during the period of obtaining the resources required for the growth phase. However, the results also implied that the transformation of current account deficit into a permanent problem could be avoided with gaining competitive advantage, achieving international market share and protecting it, strengthening the domestic currency, ensuring that external problems will not have long term effects on domestic economy, and achieving more important strategic targets.

KEYWORDS: Current account deficit, terms of trade, openness, VAR, VECM