THE EFFECT OF FINANCIAL DEVELOPMENT ON FOREIGN DIRECT INVESTMENT: A CASE OF TURKEY

Abstract

Achieving and sustaining economic growth is one of the main economic goals of countries. Financial development and foreign direct investments are principal concepts that contribute to the realization of this goal. The existence of an advanced financial system is needed in order to create and increase the level of savings that constitute the most important source of economic growth. The development of a financial system also accelerates a country's internalization capacity, ensuring efficient allocation of resources and easing in foreign direct investment transactions. Thus, developing financial systems contribute to the economic growth process by increasing domestic savings and facilitating the inflow of foreign direct investments. The aim of this study is to demonstrate the short-and long-term relationships between M2/GDP, private sector loans/GDP, stock market capitalization rate and openness rate variables for developing Turkey. To this end, [2000.Q1-2019.Q4] the Johansen cointegration analysis for the quarter data determined the long-term relationship and the short-term relationship as a result of the vector error correction model. Apart from the stock market capitalization rate, other arguments have a positive effect on foreign direct investments. It was determined that the high-impact variable is M2/GDP and the lowimpact variable is the openness rate variable.