The effects of foreign direct investment on economic growth and foreign trade: An application on Turkey

Economic growth is one of the important research areas within the field of Economics. Because, by economic growth countries gain an economic power and maintain better living standards for its citizens and political independence in the international system.When economic growth is defined as an increase in real national income, then it is achieved by increase in production. Factors of production, labour, capital, raw material and entrepreneurship are the main determinants of production.The basic problem of developing countries and least developing countries is the lack of capital. Borrowing from rich countries or international financial institutions is not a good option for these countries. Because they loose their political independence.With the help of economic globalization and increasing integration of economies, developing and least developing counries finance their capital requirements by foreign direct investments. In addition to financing capital deficits, foreign direct investments provide technological inovations and employment. Generally, there is a widespread belief among academicians that developing and least developing countries can converge richer countries by foreign direct investments.The purpose of this study is to investigate the effects of foreign direct investments on the recipient countries. The study is comprised of three sections. In the first section the definitions of foreign direct invetments, the historical progress of foreign direct investment, the underlying conditions they seek to invest in a country, the sectoral developments in the last period are analyed. In the second section, the direct and indirect effects of foreign direct investments and the generally accepted academic views on foreign direct investments, and the the emprical literatue on growth and trade effects of foreign direct investments are written. In the third section, the sectoral, regional and quantitative progress of foreign direct investments in Turkey will be examined. Then the theoretical information given in the first two sections will be tested with the data of Turkey.