The relationship between international capital movements and economic growth: Panel time series analysis G-7 country example

In this thesis, the effect of international capital movements on economic growth has been examined for the G-7 country group (Germany, USA, United Kingdom, France, Italy, Japan, and Canada) for the period 1971-2019. In the study, per capita gross domestic product variable is used to represent economic growth, and foreign direct investment, public expenditures, trade openness rate and gross fixed capital movements are used to represent international capital movements. Using these variables, classical model, fixed effects, and random effects model were estimated and it was determined that random effects estimator would give more consistent results according to model selection test results. After testing the basic assumptions in the random effect's estimator, the final model, the Driscoll-Kraay resistive estimator, was examined. According to the results obtained, a positive and significant relationship was found between international capital movements and economic growth in the G-7 country group in the 1971-2019 period. Keywords: International Capital Movements, Economic Growth, Foreign Direct Investment, Random Effects Estimator, Driscoll-Kraay.