THE CAUSAL RELATIONSHIP BETVVEEN FOREIGN DIRECT INYESTMENT AND ECONOMIC GROWTHIN TURKEY: COINTEGRATION AND ERROR-CORRECTION MODELS

Authors : Ihsan Günaydin

Pages : 239-247

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Publication Date : 2005-01-10

Article Type : Research

Abstract :This paper examiııes the causal relationships betweeıı foreign direct investment (FDI) and economic growth using Turkish annual data for the period 1976-2002, by means of coiııtegration and error-correction models. The (Augmented) Dickey-Fuller (A) DF and Phillips- Perron (PP) unit root tests are performed and all-time series become stationary after first differencing. Since all time series data are stationary in the first difference, cointegration tests are necessary. Engle-Graııger bivariate cointegration test results indicate these two variables are cointegrated. The results from Granger causality tests based on error-correction models slıow that there exists bidirectional Granger causality between FDI and economic growth, supporting the feedback hypothesis for Turkey. The diagnostic tests for adequacy of the model also performed and passed.
Keywords : Foreign Direct investment, Economic Growth, Turkey