EFFECT OF DIRECT FOREIGN CAPITAL INVESTMENTS ON SOME SELECTED MACRO-ECONOMIC VARIABLES: TIME SERIES ANALYSIS FOR TURKEY

Abstract

Insufficient capital can be given as the first of all problems that developing countries encounter in their economic development experience. Countries attempt to attract foreign direct capital investments which function effectively in increasing production and employment for economic development. Several research studies prove foreign direct investment’s contribution to national capital savings, gave pace to economic development and restructuring. Moreover capital can be given as the fastest transferrable production factor due to the technological progresses around the world. Today it is even faster to construct flows of capital. Developed nations export capital and developing countries try to enter phase of economic development by using the mentioned capital. Direct foreign capital investments positively affect GDP and development rates of many countries by influencing several economic factors. Thus, the study aims to investigate the effects of direct foreign capital investments in Turkey on some selected economic variables. The data used in the study was analyzed by Gauss codes and Eviews 10.0 to reveal the long and short term relationship of direct foreign investment with some selected economic indicators. The study also included several tests namely, Kapetanios (2005) multiple structural breakdown unit root test to investigate the series’ stationary status, Maki (2012) multiple structural breakdown test to investigate cointegration relationship among the series, Fully modified ordinary least square: FMOLS test to investigate long and short terms analysis for quarter periods between the dates of 1998 to 2018. Structural breakdown unit root test used in the study demonstrated that the series included in the study were stationary when the first difference is taken into consideration and following the multiple structural breakdown cointegration test the relationship among the series existed. Long term cointegration coefficients were analyzed by using FMOLS (Full Modified OLS) method. According to the obtained results direct foreign investment variable were statistically significant among other variables. The study concluded that direct foreign investment had negative effect on domestic investments and positive effect on economic growth, unemployment and budget deficit. Positive relationship was parallel to the other studies in the literature. Morever, the results revealed in the study were suitable to theoretical expectations. According to Granger causality test results one way causality relationship was found from direct foreign investment to investment. Direct foreign investment was 1% cause of investment ratio and ratio of investment was the cause of direct foreign investments. Although a long term relationship existed among direct foreign investment and economic growth, budget deficit, domestic savings and unemployment no direct causality relationship existed. Shortly, except for the growth no causality relationship was found for other variables.