The causal relationship between budget deficits, private savings and foreign direct investments in Turkey

In globalizing economies, government has an important role in evaluating policy objectives. In this context, budget deficits stand out as a critical factor in the implementation of government policies. Budget deficits occur when state revenues cannot cover their expenses and can be managed with fiscal discipline and effective tax policies. However, high budget deficits can have a negative impact on private savings rates and foreign direct investments. This situation can negatively affect economic stability and hinder sustainable growth. This study examines the causality relationship between budget deficit and private savings and foreign direct investments using annual data for the periods of 1990-2021 using Johansen Cointegration and Granger Causality tests. According to the analysis results; a long-term relationship between budget deficit, private savings and investments has been revealed. In addition, a one-way relationship from savings to budget deficit; a one-way relationship from budget deficit to foreign direct investments has been determined. In other words, low savings rates can increase budget deficits, and there is no relationship in the opposite case; It was concluded that high budget deficits could negatively affect foreign investments by weakening investor confidence.