Effects of real exchange rate, inflation and foreign direct investments on economic growth: A time series analysis

Economic growth can be most broadly defined as an increase in production and consumption. When we examine the literature on this topic from past to present, it is observed that economic growth interacts with various factors in different regions and periods. Countries have analyzed their economies within the framework of these factors over certain periods and developed various economic policies accordingly. This underscores the importance of analyses related to economic growth worldwide. In this study, the relationship between the real exchange rate, inflation, foreign direct investments, and economic growth in Turkey was examined using quarterly data from 2005Q1 to 2023Q3. The data were obtained from the Electronic Data Delivery System of the Central Bank of the Republic of Turkey. A nonlinear autoregressive distributed lag (NARDL) model was used for modeling the series. It was observed that inflation and the real exchange rate have a reducing effect on economic growth, while foreign direct investments have an enhancing effect. The causality analysis revealed a unidirectional causality from inflation and the real exchange rate to economic growth and a bidirectional causality between foreign direct investments and economic growth.