Causal Relationship between Foreign Direct Investment and Economic Growth (original) (raw)

Causal Relationship between Foreign Direct Investment and Economic Growth: Evidence from Turkey

In this study, we investigate the causality relationship between the inflows of foreign direct investment (FDI) and economic growth as measured by Reel Gross Domestic Product (GDP) per capita in Turkey during the period 1974 -2012 by using the Granger causality tests. The causality test indicates that economic growth Granger-causes FDI. This means that there is bidirectional causality from Reel GDP to FDI in Turkey. So our results support "the growth -driven FDI hypothesis". This demonstrates that in the related time in Turkey, more direct foreign investment entered the economy together with an increase in economic growth.

ANALYSIS OF CAUSALITY OF THE FOREIGN DIRECT INVESTMENT WITH ECONOMIC GROWTH: APPLICATION OF TURKEY

There are a lot of factors, which ones affect to the growth of economy. According to some economists mention that one of those factors is the foreign direct investment. In this study we examined the impact of the foreign direct investments to Turkey's economic growth which ones come to Turkey during 2003-2013 periods. Data's were obtained from the websites of official institutions of related organizations that includes 2003-2013 periods. The relationship between foreign direct investment and economic growth was tested by using Granger causality analyzes. In conclusion, in 2003-2013 periods, there has been no significant causal relationship between economic growth and foreign direct investment in Turkey.

The Relationship between Foreign Direct Investment and Economic Growth: A Case of Turkey

International Journal of Economics and Finance, 2021

This paper examines the relationship between net FDI inflows and real GDP for Turkey from 1970 to 2019. Although conventional economic growth theories and most empirical research suggest that there is a bi-directional positive effect between these macro variables, the results indicate that there is a uni- directional significant short-run positive effect of real GDP on net FDI inflows to Turkey by employing the Vector Error Correction Model, Granger Causality, Impulse Response Functions and Variance Decomposition. Also, there is no long-run effect of net FDI inflows found on real GDP, yet vice-versa long-run effect has been found. The findings recommend Turkish authorities optimally benefit from the potential positive effect of net incoming FDI on the real GDP by allocating it for the productive sectoral establishments while effectively maintaining the country’s real economic growth to attract further FDI inflows.

Foreign direct investment, exports and output growth of Turkey: Causality Analysis

European Trade Study Group (ETSG) fifth annual …, 2003

The beginning of 1980s constituted a turning point in the economic life of Turkey. At the time, the government decided to shift the economy from an inward oriented and protective system to an outward oriented and liberalized environment. In 1980 the Turkish government initiated a series of reforms to accomplish a major policy shift from import substitution to an export led growth (ELG) strategy, mainly by liberalizing foreign trade. The lifting of repressive controls on financial markets, referred to as financial liberalization, was realized gradually over 1980s as a part of this policy change. Turkey liberalized its capital accounts in 1989, taking an important step towards integrating its economy with the global economic system. The realization of financial liberalization did not solve Turkey's main economic problems as expected. Although capital inflows contribute to economic growth through their positive effect on private consumption and investment Celasun, Denizer and He (1998), resulted in currency substitution, thereby aggravating inflationary pressure on the economy and rendering monetary policy ineffective. Despite the unstable economic environment in Turkey, capital flows into the country increased steadily after 1990, with net capital inflows reaching more than four percent of gross domestic product (GDP) in some years. Although Turkey made progress in attracting foreign direct investment (FDI), total FDI never reached more than 0.5 percent of GDP in 1990s. This is one of the most salient features of capital flows to Turkey. The major policy shift from import substitution to ELG substantially increased Turkey's export figures and, together with a dynamic private manufacturing sector, Turkey became a major manufacturing base for a number of multinational corporations. Such development, however, have not brought about a corresponding increase in capital inflows. Accordingly, Turkish FDI levels have stagnated over the last 15 years while FDI worldwide increased by a factor of 12 in the same period. These developments indicate that Turkey's outward looking policies should include FDI as another important component of its growth strategy. This paper aims at demonstrating the effect of Turkey's liberalization process on economic growth by investigating a Granger causal relationship running from exports to economic growth in Turkey from 1987-I to 2002-IV. Additionally, causality tests among trade, FDI and output for the same period are performed to show the inter-relatedness of trade, FDI and growth. The results indicate that the integration of the Turkish economy with the world economy should be enhanced with policies to attract more FDI in order to gain the spill over effects of FDI to output and FDI-led export growth.

Causal Relationship between Foreign Direct Investment and Growth: Evidence from BRICS Countries

International Business Research, 2009

In this chapter, the authors investigate the causality relationship between the inflows of foreign direct investment (FDI) and economic growth as measured by Real Gross Domestic Product (GDP) per capita in Turkey during the period 1974-2012 by using the Granger causality tests. The causality test indicates that economic growth Granger-causes FDI. This means that there is bidirectional causality from Reel GDP to FDI in Turkey. So the author results support "the growth-driven FDI hypothesis". This demonstrates that in the related time in Turkey, more direct foreign investment entered the economy together with an increase in economic growth.

A GRANGER CAUSALITY ANALYSIS BETWEEN FOREIGN DIRECT INVESTMENT AND ECONOMIC GROWTH

Foreign Direct Investment is globally considered as an inevitable vehicle for the prospective development of developing countries. Governments across the globe are taking all possible efforts to pull in as much Foreign Direct Investment (FDI) as possible. Across countries it has proved significantly time and again that FDI enhances the development of the economy in many channels. This paper examines the existence of link between FDI and economic growth. Pair wise Granger Causality Analysis is used to study causality. Gross Domestic Product is proxied with Economic Growth. With two lags, our results suggest that there exists a bi directional relationship between lagged values of FDI and GDP.

Causal Links Between Foreign Direct Investment and Trade in Turkey

International journal of economics and finance, 2011

This paper investigates the empirical evidence on the link between foreign direct investment and trade (export and import) in Turkey over the period from 1992:01 to 2008:04 by using the minimum LM unit root test for stationarity; Granger and Dolado-Lüthkepohl tests for causality. The test results based on the bi-variate VAR model indicate that there is no evidence of causality between foreign direct investment and trade in Turkey.

Does foreign direct investment affect economic growth? The case of Turkey

Abstract Purpose – The purpose of this paper is to analyze the impact of inward foreign direct investment (FDI) and international trade on economic growth in Turkey for the post-liberalization period (1980-2010). Design/methodology/approach – The paper employs the vector auto-regression model with four variables: real GDP growth, real inward FDI, the real import volume index and the real export volume index. Findings – Empirical results suggest a relationship between economic growth, inward FDI and exports. Practical implications – The results derived in this paper shed light on the relationship between FDI and international trade on economic growth for Turkey, which has been applying an export-led growth strategy since 1980, and has been implementing many regulations to attract foreign capital. It is evident that although Turkey’s efforts and the importance of this issue, new policies and stabilization regulations must be established for the Turkish economy. Originality/value – This study contributes to the literature in at least two aspects. First, a comparative analysis of Turkey’s inward and outward FDI with respect to different country groups was analyzed. Second, apart from other studies, the effect of inward FDI and international trade on Turkey’s economic growth was tested utilizing an econometric method from 1980 to 2010, which is a relatively long time period for Turkey. Keywords Development, Developing countries