Three essays on external financing sources for developing countries: External debt, foreign direct investmentsand hot money flows

In this thesis, foreign debts, foreign direct investments, and short-term capital movements, which are among the most current topics in the field of external financing resources are examined using an extensive sample and analysis methods. In the first part, the sustainability of external debt in Turkey is discussed both theoretically and empirically. The form and function of external debt, which has changed especially after the 2000s, is examined from the point of both the creditor and the debtor. In the study, the sustainability of external debt in the Turkish economy is analyzed based on the indicators that the World Bank attaches importance to. In this context, analysis is conducted considering the criteria Ratio of Total External Debt to GDP, Ratio of Total External Stock to Export, Ratio of Total External Service to Export, and Ratio of Total Interest Payments on External Debt to Export Proceeds. In Perron (1998), Zivot & Andrews (1992), and Lumsdaine & Papell (1997) unit root tests with the structural break, the basic hypothesis demonstrating that the series has a unit root with structural break is assumed. As a result, it is determined that external debt in Turkey is unsustainable within the 1989-2019 period. In the second part, it is intended to determine the factors affecting the foreign direct investment inflows to Turkey. Furthermore, the sectoral distribution of foreign direct investments and the changes in the geographical distribution of foreign direct investments are investigated for Turkey. For the analysis part, after the theoretical and applied studies (literature) related to the subject are carefully examined, the macroeconomic factors that govern the foreign direct investments in Turkey are analyzed. In line with this target, foreign direct investments (FDI), market volume (GDP), financial openness ratio (FOR), the real exchange rate (RER), and the volatility index (VIX) for the period 2003:Q2-2019:Q4 of the Turkish economy are considered as the main determinants. ADF and PP unit root test results for FDI, GDP, FOR, RER and VIX variables are examined. In the analyses, the null hypothesis states the variables are not stationary with their level values is rejected. Granger causality test is used to determine the relationship between FDI determined by factors GDP, FOR, RER, and VIX with FDI inflows. Based on the results of the causality test, FOR and VIX is found to be Granger causality of FDI. In other words, the past and present values of FOR and VIX ratios have a significant effect on foreign direct investments for Turkey. Herein, a one-way causality relationship is determined. According to the test results, FDI has a one-way effect on GDP whereas no causality relationship is obtained between RER and FDI. In the third part, the effects of short-term capital movements on the Turkish economy are investigated. Within this scope, approaches to explain the effects of financial liberalization policies on macroeconomics are discussed in order to analyze the subject more thoroughly. It is examined how and to what extent the financial liberalization policies implemented in Turkey to attract the short-term capital movements have been successful. The study examines the effects of short-term capital movements on the Turkish economy within the framework of the McKinnon-Shaw hypothesis by using the data from 1995 to 2020 for the balance of payments, growth rate, inflation rate, savings and investment rate, and balance of foreign trade. In this framework, the changes in the short-term capital movements, portfolio investments, growth rate, current account deficit, and balance of foreign trade data in the Turkish economy during the liberalization period are descriptively discussed. In the study, it was concluded that although the short-term capital movements created additional financing opportunities for the real economy, they did not provide steady growth and the saving and investment rates did not increase. Keywords: External Finance, External Debt Sustainability, Foreign Direct Investment, Short-Term Capital Movements, Financial Liberalization.