The impact of foreign financing on Türkiye's economic wealth

Foreign financing—including foreign direct investment, foreign portfolio investment, real estate sales to foreigners, and long-term external loans obtained by the private sector—is considered an important instrument for overcoming political and economic bottlenecks and ensuring sustainable economic development. Understanding the impact of these financing types on economic wealth is critical to evaluate whether they are directed toward productive sectors and used efficiently in terms of sustainable development. Although the effects of foreign financing on economic growth have been widely studied in the literature, there is limited analysis of their impact on economic wealth, a multidimensional and complex concept. Therefore, this study investigates the long-term and structural effects of these external financing types on Turkey's economic wealth through a comprehensive approach. To this end, the fundamental structural components determining economic wealth were first examined. Widely used indicators of wealth, economic capacity, and development in the literature, along with their limitations, were evaluated. The findings indicate that economic wealth cannot be measured solely by single indicators such as total output or income per capita, as it encompasses a more complex and multidimensional structure. Accordingly, a new Economic Wealth Index (EWI) was developed as a comprehensive and multidimensional measurement tool that considers a country's production capacity, output distribution, and institutional sustainability. The index includes classical macroeconomic indicators (GDP, GDP per capita, GINI, employment rate, national savings rate, gross fixed capital formation) as well as structural, institutional, and productivity-related indicators (patent applications, Economic Complexity, Human Capital, Economic Freedom, and Control of Corruption). The EWI was constructed using Turkey's data for the 2000–2020 period through Principal Component Analysis (PCA). After the index was developed, the impact of four types of foreign financing—foreign direct investment, portfolio investment (stocks and bonds), real estate sales to foreigners, and long-term external loans—on the index was analyzed using a time series regression model. Prior to the regression, the stationarity of the variables was tested with the Augmented Dickey-Fuller (ADF) test, and long-term relationships were examined using cointegration tests. The results indicate that foreign direct investment, bond-based portfolio investment, and real estate sales to foreigners have a positive and significant effect on economic wealth. In contrast, stock-based portfolio investments and long-term external loans have a negative impact. The findings suggest that for foreign financing to contribute to economic wealth, resources must be directed toward productive areas and credit allocation processes must be made more transparent. This study provides an original contribution to the literature by developing a new multidimensional index (EWI) and analyzing the differentiated effects of various types of foreign financing on this index.