Time series analysis of relationship between FDI in Turkey and selected macroeconomic indicators

A considerable number of new theories have been developed after 1960s as a result ofincreasing importance of both multinational corporations and foreign direct investments (FDI)in the world. Economic effects of FDI have become an important research topic. While someof these studies analyze the effects of FDI on the source country economies, the othersconcentrate on the effects of these investments on the host countries. FDI could bring capitalgoods, new technology and knowledge to the host economy. FDI and the macroeconomicvariables of the host economy are in constant interactions with each other. Determining thedirection of the causality between variables is important in terms of developing long runeconomic policies. One of the most important issues questioned by the empirical studies aboutFDI is the relationship between FDI and economic growth. The relationship between FDI anddomestic investments and between FDI and international trade are among other researchtopics.The dynamic relationship between FDI coming into Turkey and per capita grossdomestic product (PCGDP), GDP with constant prices, domestic investments, exports andimports are analyzed with time series techniques for the period of 1970-2003. Both standardGranger causality tests and VAR analysis results indicated that the relationship between FDIand growth, domestic investments, imports and exports always originated from these variablestoward FDI. The results from variance decomposition and impulse response functions alsosupported these findings. Estimated models using one period lag for each variable showedthat the present values of FDI are affected from both past and present values of growth,domestic investments, imports and exports, but this causal relationship does not hold on theopposite direction.