THE EFFECT OF REAL INTEREST RATES IN TURKEY ON NET PORTFOLIO INVESTMENTS

Abstract

Lack of sufficient capital for adequacy for economic growth and economic development, to create new business areas by eliminating the problem of poverty and unemployment and to increase low labor prices, has increased the need for foreign capital, especially in developing countries. In Turkey, which is among the developing countries, serious steps have been taken especially since the 1980s to attract foreign investors. With the liberalization of capital movements in 1989, changes have also occurred in the type of foreign investments made in Turkey. Investments made mostly in the form of direct investments before this date have been realized as portfolio investments since this year. On the other hand, more than one parameter became effective for foreign investors to prefer Turkey. The aim of the study is to reveal the effect of real interest rate, which is one of these parameters, on net foreign capital. Accordingly, in the period between 1989-2020, ARDL boundary test was conducted in Turkey to determine the short and long term effects of real interest on net foreign portfolio investments. As a result of the analysis, the existence of a significant and negative relationship between the relevant variables in the short term and the existence of a significant and positive relationship in the long term was reached out. In addition, it was found that there is a negative relationship between government budget deficits, which are used as control variables, and net portfolio investments. In addition to all these, in the analysis, it was observed that Turkey had a serious outflow of foreign capital during the economic crisis.