The Impact of short-term foreign capital flows on Turkish economy: An Econometric analysis

Sustainable, strong, and robust growth strategies have been one of the challenges governments encounter. Various theoretical frameworks, guidelines, and policy directions have been proposed and implemented in the literature to enrich economic performance. As for viewing the applications and theoretical frameworks, adequate savings or achieving and generating savings through different paths have been primarily irreparable determinants of economic growth. However, the developing and least developing countries encounter severe ossified bottlenecks, which dampen savings and economic performance. Globalization and the liberalization of trade, finances, and production have been announced as the overcoming of the developing and least developing countries' issues related to economic growth projection over the six decades. With the help of globalization and removing restrictions on the economy, various theories and views claim that developing and least developing countries can achieve adequate foreign capital to invest in the required infrastructure and production for economic growth. Short-term foreign capital inflows have been one of the most discussed and influential factors in foreign capital inflows. Since the 1980s, financial removal has been intensely lifted, and any fluctuation in short-term foreign capital funds has determined the economic performance of developing countries. Türkiye is one of the most essential examples of the role of short-term foreign capital funds in the economy. Within this context, the study has endeavored to investigate the effect of the short-term foreign capital inflows on the five selected macroeconomic factors named the Central Banks' foreign reserve, the nominal exchange rate, the real effective exchange rate, GDP and Consumer Price Index over the period between 2003:Q3-2022:Q3. Various econometric methods based on symmetric, asymmetric, and different frequencies have been employed to reach the evidence. Short-term foreign capital inflows promote varying shapes, strengths, and sizes of influence on macroeconomic variables. As a consequence of the estimations, it is argued that the Turkish economy has not experienced a process in line with the views favoring liberalization and short-term foreign capital flows. The expected improvements in inflation, nominal exchange rate, inflation, and GDP due to short-term foreign capital inflows are not permanent. It is also among the study findings that the interaction between variables is more pronounced in the asymmetric rather than symmetric area. As the role of short-term foreign capital inflows has been detected as more visible in extreme periods such as excessive capital abundance and scarcity, the study recommended that policymakers may mobilize and invite long-term capital inflows and implement policies aimed at increasing domestic savings.