The effect of foreign portfolio and other investments on growth in Turkey

With the acceleration of financial liberalization movements in the world, international capital movements have reached very large dimensions. As a result, the importance of international capital movements in the formation of basic economic indicators has started to increase. In this context, it is seen that economic growth processes in many countries are influenced by global capital movements. So much so that today, foreign capital inflows have become an important source to achieve the goal of economic growth. In this context, the relations between international capital movements and economic growth have constituted an important research area and have started to be analyzed in many different dimensions. Within the scope of the study, the effects of capital inflows in the form of portfolios and other investments in Turkey on economic growth were investigated. The effects of portfolio investments in the form of stocks and debt securities and other short- and long-term investments on growth were analyzed with Johansen Cointegration and Granger Causality tests using quarterly data between 2003 and 2022. Empirical findings have shown that there is a causality relationship only from capital inflows in the form of other short-term investments to growth. The impact of other financial foreign capital inflows to Turkey on economic growth has not been determined. The fact that there is only a causal relationship from short-term foreign investments to economic growth in Turkey has revealed the importance of short-term capital movement management. Accordingly, while short-term capital inflows are encouraged for economic growth, necessary measures should be taken to reduce the long-term negative effects of such capital inflows. In this context, policy measures should be developed to prevent short-term capital inflows from overvaluing the local currency and widening the current account deficit.