FOREIGN DIRECT INVESTMENT AND IMPORTS GROWTH IN TURKEY

Authors : Kevin O. Onwuka, Kutlu Yaşar Zoral

Pages : 2357-2380

View : 12 | Download : 7

Publication Date : 2009-06-01

Article Type : Other

Abstract :This paper examines the relatıonship between foreign direct investments (FDI) and import growth in Turkey over the period 1950 to 2004. To test this hypothesis we extend the traditional import demand function to include FDI based on the new theory of trade and employ the bounds testing approach in ARDL (autoregressive distributed lag) framework and Fully Modified OLS (FMOLS) of Philips and Hansen to test the robustness of the results. The results reveal that there is a long run relationship but it is not unique and the most significant determinants of imports growth in Turkey in the long run are income (GDP) growth and domestic price level (CPI). The impact of FDI in the long run is marginal. In the short run, the most significant factors that affect import demand are income growth, relative price and domestic price level. The major implications of these results include: First the import demand in Turkey will be driven principally by income growth and also by foreign direct investment as predicted by the new trade theory but not at desired level. Second continued appreciation of Turkish Lira suggests more import demand, trade deficits and huge import bills which further reduce Turkish foreign reserves. However, as relative price will not affect the import demand in the long run the import bili will remain unchanged. 
Keywords : imports growth, foreign direct investment and economic, reform